Posted November 12, 2012
In an ideal world, employers seeking talented Nova Scotians for well-paying jobs would appear unsolicited. We don’t live in such a world. Yes, we have an abundance of talent and the quality of life is great. But the same is true of many other jurisdictions, most of whom have lower tax rates and more employer-friendly labour legislation. It is also common for governments to provide incentives to employers who in turn have become skilled at bargaining for the best deal.
So Nova Scotia has to compete for most knowledge-based jobs with incentives. The worst kinds are large upfront grants, equity stakes, or “loans” which never seem to get repaid. Much better are payroll rebate plans that are spread over several years and tied to the number of jobs actually produced.
Even these can be unsuccessful if there is no lasting reason for the jobs to be in Nova Scotia. Thus there has been a recent exodus of call centre jobs shortly after the incentive programs run out.
Last week IBM announced that it would grow by up to 500 employees over the next eight years. It was encouraged to do so by a ten year outsourcing contract and a rich incentive amounting to about 9.5% of payroll over the eight years.
Projex, an engineering firm, signed a similar arrangement to add up to 440 positions over five years, with a 7% of payroll incentive.
There is much to like about both deals:
- There is a good chance that the jobs will be sustainable after the incentives run out. Both rely directly on the output of NSCC and our universities for new employees (and the incentives are higher for new graduates and out-of-province hires). IBM proposes to engage directly with them for teaching and research.
- The government has shown a willingness to outsource activities that are not part of its core functions such as education or health care. Let’s hope this thinking extends to other areas such as cafeterias and hospital laundry.
- The jobs, particularly at Projex, pay above average salaries which produce above average tax revenues. It is unfortunate that the government continues the absurd suggestion that the excess of tax revenues over incentives represents a “profit.” If so, who is going to pay for the health, education, transportation and other services that the employees and their families receive? That being said, the taxes on a $90,000 income (the forecast average for Projex) will exceed the average cost of services, and so will provide a partial offset for the incentives.
There are also downsides, both real and imagined. There are other IT and engineering firms who may feel discriminated against. As payroll rebate deals go, the IBM one is particularly rich and long-lasting. It is annoying to think that a competitor may poach your employees and perhaps your customers because of incentives paid for with your tax dollars. But other large firms who want to grow are always welcome to seek similar payroll rebates.
It would not be a bad outcome if the consequence of the deals is to put a little upward pressure on IT and engineering salaries.
The employees being outsourced to IBM are experiencing a period of uncertainty and anxiety. Before knowing any of the details Joan Jessome, who is opposed to anything that subtracts from her union, has done everything she can to make employees feel negative. Employees may want to consider the possibility that working for a large technologically sophisticated employer with rich opportunities for personal growth will be a good outcome.
Some payroll rebate opportunities achieve much less than hoped for on the day they are announced. On average, about half actually occur. But at least the taxpayer only pays for the ones that do.
So overall these are positive developments. Unfortunately this formula is unlikely to work in rural Nova Scotia where a different approach is required. More on this in the next article.
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