Tourism, Education, and Exports: Nova Scotia in the Context of Cheaper Energy and a Weaker Dollar

In recent months, oil prices have fallen dramatically and the Canadian dollar has weakened, which has led to speculation that Canada’s economy could be on the verge of an economic crisis. Yet, despite the obvious drawbacks of these developments, they could yield serious economic benefits for Nova Scotia, particularly for firms that export their goods and services to other jurisdictions. On the contrary, however, the cost of imports could rise and harm those consumers who rely on imported goods and services.

Nova Scotia’s economy relies heavily on education, exporting goods and services, and tourism, all three of which could benefit from lower energy prices and a weaker dollar. In fact, these two developments could help the province achieve the recommendations featured in the OneNS report, i.e. doubling the revenue from tourism in the next ten years, expanding the province’s export industry to meet the demand of the global economy, and developing a strategy that would help retain international students in Nova Scotia after they graduate.

Most projections anticipate that the Canadian dollar will remain relatively weakened in the coming months, which could bring enormous benefits to the province’s tourism industry and the estimated 24,000 individuals working in it–one person for every twenty living in communities across the province. In Nova Scotia, 1.9 million tourists traversed the province in 2014 and hotels sold 250,800 rooms, which generated $285 million in economic activity. There are also spillover benefits that help indirectly stimulate the local economy. Essentially, as the Canadian dollar weakens relative to other currencies and exchange rates fall, visiting Canada will become more attractive to foreigners and those who have already planned their vacations will have additional money to spend.

A weaker Canadian dollar might also encourage international students to pursue an education in Canada and postsecondary institutions in Nova Scotia could be among the primary beneficiaries. Furthermore, it would also make housing more affordable for international students who benefit from a lower exchange rate, which could dissuade students from choosing schools in Europe or the United States. Lastly, an influx of international students would increase the demand for local goods and services, resulting in additional economic activity and generating more revenue for local and provincial governments.

In his keynote speech at the Institute’s “For the Love of Nova Scotia, Let’s Focus on the Economy” event on February 11th in Halifax, Oxford Frozen Foods President John Bragg argued that Nova Scotia’s export industry should expand to the global market. Fortunately, these exporters will benefit from lower energy costs and a weaker currency and the time is ripe for those firms to expand their marketing efforts to countries in Asia and Europe wherein demand for the goods and services that Canadian firms offer is high. In fact, Clearwater Seafood Incorporated reported $444.7 million in earnings in the 2014 fiscal year and international sales have been rising in recent months. As Roger Taylor put it in the Chronicle Herald, “Product has a lot to do with it, but Clearwater is proving that being based in Nova Scotia is no impediment to successfully doing business around the world.”

To clarify, falling oil prices and a weakening currency has some clearly negative effects, particularly for Canadian firms in the western region. In Nova Scotia, however, those two developments could bring tremendous economic benefits to the province by encouraging tourism in the region, enticing international students into attending one of Nova Scotia’s premier postsecondary institutions, and making Canadian exports more affordable to international consumers.

Rinzin Ngodup is an AIMS on Campus Student Fellow who is pursuing a graduate degree in economics at Dalhousie University. The views expressed are the opinion of the author and not necessarily that of the Atlantic Institute for Market Studies

Strike Signaling and the UNB Negotiations

In light of the University of New Brunswick’s (UNB) strike, I present a model for common information signaling between unions and firms during wage bargaining.

In order for a sustainable hiring of labour to take place, wages must fall in between a certain window. The lower end is defined by the value a worker places on his own time and effort. The employee’s value to the company, i.e. his marginal product, is on the higher end. Paying employees the actual value of their marginal product would imply that profits are near zero. Similarly, paying employees close to their own lower limit encourages them to quit.

During wage negotiations, unions and firms engage in a great deal of signaling. They make claims about their willingness to work or the financial situation of the company in order to define clearly the negotiation window. An employee’s willingness to work is usually a combination of his job satisfaction, coupled with the wage he receives. To this extent, workers, or their unions, have an incentive to claim that their minimum acceptable wage is high, even if it is not. This is a form of information signaling to the firm regarding the willingness of employees to work under the given circumstances.

From the firm’s perspective, the ability to provide wage increases for its employees depends on how the marginal product of each worker relates to their wages. This correlates closely with the firm’s profit margin. In other words, a positive profit margin typically indicates a gap between wages paid and the cumulative marginal product of the company’s workforce, therefore indicating that there is room for negotiating a wage increase.

To complicate things, both sides have an incentive to conceal their true position, so they rarely trust one another’s information. The firm assumes that the union is exaggerating working conditions and job satisfaction, while the union assumes that the firm underreports their financial health and profitability. This is the rationale behind strikes and lockouts.

The basic idea behind strikes and lockouts is that it forces each party to reveal their position and preferences. Strikes delay production, reducing both revenue and remuneration. Therefore, the mindset of the union is as follows: “If you really need to resist wage increases, then you should prove your position by hurting yourself first.” Similarly, a firm-induced lockout signals that, “If wage increases are really that important to you, you are probably willing to be locked out to secure them.” This back-and-forth signaling reveals their true preferences, which both parties observe via workers’ continued willingness, or unwillingness, to strike, in addition to the firm’s continued commitment to a lockout.

When both parties acquire enough information, their true negotiation windows become clear and they can reach a conclusion. In the case of the UNB strike, the negotiation window appears quite large, with the Association of University of New Brunswick Teachers (AUNBT) requesting a 26 per cent wage increase, among other demands. At the same time, UNB claims that it is in rough financial shape, suggesting that there a divide between both parties–the negotiation window is quite large. Concordantly, this standoff may take longer than expected to draw out the true preferences of both the AUNBT and UNB.

Mike Craig is a 2013-2014 Atlantic Institute for Market Studies’ Student Fellow. The views expressed are the opinion of the author and not necessarily the Institute

Four Pragmatic Questions to the Drop Student Fees Movement

It is often asserted that an educated populace is a win-win societal investment for everybody. They are absolutely right, education is investment in human capital. I am in no way against an educated populace nor am I against restricting the number of degrees attainable if individuals in society truly are achieving higher than ever in academia. I am in no way against investment in education for the same reason why I am not against investment in any other industry or sector of the economy (whether it be in the stock market, housing, technology, automobile companies, etc.) The issue I have is not with investment but malinvestment. In this article, I will propose some simple questions to the Drop Student Fees Movement:

  1. In any industry, there is good investment and there is bad investment. Is it possible that there are some degrees that are not investing tax payer dollars in? On that note, is it possible that degrees are not made equal but some are more worthwhile than others?
  2. Should all degrees be subsidized equally? Should a degree in Arts History or Film Studies be subsidized to the same extent as a degree in Neurobiology, Physics, or Economics? A free market would undeniably be discriminatory as lenders would weigh the expected returns with the costs of education but when lending is done by bureaucrats who bear no cost of their risky investments and use tax payers money, there is not much incentive to discriminate especially when faced with political rather than economic pressures. This may be argued as a good thing but in China and India there is a surge of students majoring in the sciences, engineering, information technology, and finance while here in Canada there is arguably an oversupply of Arts students with very little to offer the skilled labour market. Do these distorted incentives end up making the Canadian student less competitive?
  3. A good investment is not judged solely by the returns. A good investment is judged by the returns in relation to what was sacrificed. Supporters of the Drop Student Fees movement seem to assert that education is an investment where costs shouldn’t matter. This implies that education is always worth it, period. If education is an invaluable asset, then spending $100,000 on an Arts History degree shouldn’t be a deterrent to interested students nor should it concern any tax payer. I don’t think any sane person who remotely understands scarcity would agree with this. The question I ask is: at what margins is the cost of education too high such that society is actually worse off? What is the conceivable limit where too much is too much?
  4. If student fees were completely dropped, student attendance is guaranteed at whatever price they charge. Prices offered would no longer be a competitive bargaining chip amongst universities. What would incentivize universities to lower costs? What would disincentives universities to raise costs to atrocious numbers?

While the left incessantly spouts policy solutions based solely on intention rather than critical reasoning or investigation, the burden of proof has largely fallen on free marketeers to disprove them.  It should in fact be the opposite case as they are the ones proposing a larger more active role for the State to dictate how our money should be spent. Until these questions are sufficiently answered, the positions of the Drop Student Fees movement shouldn’t even be considered.

-Ian CoKehyeng