Three Policies to Improve Productivity Growth in Canada



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LMI area, but their efforts are often uncoordinated and duplicative. A non-governmental
agency funded by both levels of government could potentially invigorate the LMI field
and make Canadians more aware of employment opportunities throughout the country.

The federal government is also attempting to reduce barriers to labour mobility in
provincially licensed professions through the Agreement on Internal Trade secretariat.
Macmillan and Grady (2007) report that remaining interprovincial barriers related to
licensing are limited. But measures to eliminate these remaining barriers to mobility
would still have an economic payoff.

In terms of new policies to foster interprovincial mobility, this paper also
proposes that the federal government establish a tax credit for expenses associated with
job search in other provinces. Moving expenses are currently deductible from income.
But the expenses associated with initial job search, such as travel and accommodation
expenses, are currently not covered. Their coverage would reduce the after-tax cost of
interprovincial job search and hence provide an additional fiscal incentive for workers to
seek better employment opportunities in other provinces.

A risk associated with such a mobility tax credit is that it might encourage “game
playing.” Persons may claim a deduction for job search costs even though they were not
engaged in genuine job search. Proof of job search, such as submission of a form signed
by employers approached, might be required for this deduction.

The actual costs of such a program would be small. According to Finance Canada
tax expenditure estimates (Finance Canada, 2005), the cost of the moving expense
deduction to the federal treasury was $88 million in 2002 and projected to rise to $100
million in 2007. As this number includes the cost of moving possessions and family
members and applies to both interprovincial and intraprovincial moves, the cost of a
deduction for interprovincial job search expenses for one family member would be much
less. A ballpark estimate of the cost of the initiative might be in the range of $15 to $25
million.

In addition to the positive (although probably minor) effect at the margin on the
decision of Canadians to engage in interprovincial job search, another advantage of the
proposal is to highlight the role of interprovincial mobility for a dynamic labour market.
Such a tax credit would be a concrete manifestation of the importance that the federal
government attaches to workers seeking employment opportunities where they arise
throughout the country.



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