Remarks by Tiff Macklem
Governor of the Bank of Canada
Universities of Atlantic Canada
May 13, 2021
Halifax, Nova Scotia
(via webcast)
The benefits of an inclusive economy
Introduction
Thank you for the invitation to speak to you today. As a former university dean, I
am particularly glad to reconnect with so many students. I miss your relentless
curiosity, your boundless energy and your determination to build a better world. I
only wish I could be with you in person. I realize that yet another virtual talk on
top of your virtual classes is less than ideal. So thank you for joining me. And let
me congratulate every one of you for your adaptability, your ingenuity and your
spirit of community through this pandemic.
I am also grateful for the invitation because I want to discuss an important topic
with you. That topic is diversity and inclusion-at the Bank of Canada, within the
economics and finance profession and in the economy as a whole.
Now, you may be asking yourself, why does a central bank governor, whose job
is to control inflation and foster a stable and efficient financial system, want to
talk to us about diversity and inclusion?
The answer is simple. Diversity and inclusion are critical to our success as a
central bank in the service of Canadians. They are essential for the economics
profession to attract the best talent and foster ingenuity and innovation. And they
matter for the whole economy. A more inclusive economy is a bigger economy, a
more prosperous economy with more room to grow without creating inflationary
pressures.
It's
There is, of course, a moral imperative to pursuing diversity and inclusion.
simply the right thing to do. But I will leave that topic to others. I am here to talk
about the competitive imperative, the economic imperative.
Your next question might be why am I talking about this now? This issue is not
new, and we are still in the midst of a global pandemic. But one of the most
striking features of the pandemic has been the way it has worsened inequalities
in our society. Young people like you, low-wage earners, women and racialized
Canadians have borne the brunt of the job losses because they hold so many of
the jobs in the hardest-hit sectors. Output in high-contact service sectors-such
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as retail stores and restaurants-remains almost 20 percent below where it was
before the pandemic. Meanwhile, the combined output of the rest of the economy
is now slightly above its pre-pandemic level.
The pandemic has also widened other divides. The closing of schools and
daycares has been particularly hard on women because they still carry a heavier
those who can't work
load for child care. It has also been unfair to remotely and
don't have access to
to those who can but high-speed internet.
My point is that the pandemic makes fostering an inclusive economy more
fully heal the economy until we address these
important than ever. We won't
unequal impacts. And rather than just trying to recover to where we were before
the pandemic, maybe we can bring the economy to a better place for everyone.
That is why I want to talk about diversity and inclusion.
Progress has been made, but we can do better
Let me start by making sure we are on the same page with terminology. Diversity
has many dimensions. There are the more observable ones, such as skin colour,
gender, age and language. We can also differ in sexual orientation and in culture.
And we have different backgrounds and personal characteristics, skills and lived
experiences that all shape us. We have different approaches to learning, working
together and solving problems.
But while diversity is a fact, inclusion is an act. Even the most representative
doesn't
organization will miss out on the benefits of diversity if it have an
inclusive mindset. Workers need to feel that they can bring their whole selves to
work-to express their diversity, have it valued and reach their full potential.
Economic research has already settled the question of whether diversity and
inclusion bring benefits. We know they do. Diverse and inclusive groups make
That's
better decisions. because they can avoid the groupthink that happens
when decision-makers all have similar backgrounds and approach problems in
the same way.1 If you bring diverse perspectives and experiences to a problem,
you get novel solutions, creativity and higher productivity.2 Companies that
harness these benefits give themselves a clear competitive advantage.
1
For evidence on collective intelligence, see L. Woolley, A. Caza and L. Levy, "Authentic
Leadership and Follower Development: Psychological Capital, Positive Work Climate, and
Gender," Journal of Leadership & Organizational Studies 18, no. 4 (November 2011): 438-448.
For evidence on outperformance by racially and culturally diverse groups, see K. W. Phillips,
G. B. Northcraft and M. A. Neale, "Surface-Level Diversity and Decision-Making in Groups: When
Does Deep-Level Similarity Help?" Group Processes & Intergroup Relations 9, no. 4
(October 1, 2006): 467-482.
"Diversity in the
An excellent survey of the literature is provided by A. Bayer and C. E. Rouse,
Economics Profession: A New Attack on an Old Problem," Journal of Economic Perspectives 30,
no. 4 (Fall 2016): 221-242.
2
A. K. Y. Leung, W. W. Maddux, A. D. Galinsky and C. Y. Chiu, "Multicultural Experience
Enhances Creativity: The When and How," American Psychologist 63, no. 3 (May 2008): 169-
181; R. B. Freeman and W. Huang, "Collaborating with People Like Me: Ethnic Coauthorship
within the United States," Journal of Labor Economics 33, no. S1 (July 2015): S289-S318.
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Over the past decade, Canadian workplaces have become more diverse. And
finance is among the industries that have made the most progress, particularly in
terms of representation on boards. But despite this progress, we still have a long
way to go. Consider that the median hourly wage for women in financial
industries is 18 percent less than their male counterparts.3 And survey data show
that significant numbers of people working in financial services have concerns
about issues such as stigma around maternity leave and unequal access to
career advancement.4
The numbers regarding other equity-seeking groups are more troubling. An
analysis last year of 217 Canadian businesses showed that only 5.5 percent of
their directors were members of a racialized group. And among a larger pool of
270 companies with more than 2,000 board members, a grand total of seven
positions were held by Indigenous people and just six by persons living with
disabilities.5 Clearly, we can-and must-do better.
Why it matters to the Bank and the economics profession
At the Bank of Canada, we know that diversity and inclusion are core to our
Beyond the benefits I've already
success as a leading central bank. mentioned,
we also know that the Bank will be more trusted and relatable if all Canadians
can see themselves reflected in us.
Diversity and inclusion in our organization
That's why
we are working to make sure our hiring practices are free from bias,
both conscious and unconscious. We also want to develop diverse potential
employees, whether they wind up working with us or elsewhere in the field.
We've launched scholarships for students with disabilities, Indigenous students
members of racialized groups. And we have the Master's
and students who are
Scholarship Award for Women in Economics and Finance, which carries a prize
of $10,000, mentorship by a Bank employee and a job offer.6
Once we've attracted diverse employees, we work hard to keep them by
ensuring that they feel included. We look at internal data to see where members
of equity-seeking groups are facing barriers throughout their careers. We are
building a pipeline of leaders from diverse groups who can go on to become
We've invested heavily in training for
senior leaders. all leaders and staff. We
make sure mentoring is available to everyone. And we now have several
employee resource groups, made up of people from equity-seeking groups and
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their allies. They are making important recommendations to help build a truly
inclusive culture.7
But I'm not going to pretend that we've done enough. We are still far from
of the Bank. That's why we
representative, particularly at the most senior levels
developed and made public our diversity and inclusion strategy, which contains
specific, measurable goals.8 We put diversity and inclusion in our strategic plan.
And we are allocating resources to make sure we can back up our words with
concrete actions.
Diversity and inclusion in our work
Becoming a more diverse organization helps us be more open to feedback, so
we can gain a better understanding of the needs of all Canadians. Let me give
you some examples.
It has been a long-standing practice for us to work with people at the CNIB
Foundation and include their feedback in the design of our bank notes, ensuring
they are accessible to the blind and partially sighted communities. More recently,
we've
asked the public for their input on whose portrait they would like featured
on their bank notes. I know the Black community in Halifax, and indeed all of
Nova Scotia, was particularly proud that Viola Desmond was chosen for our
newest $10 note. And Canadians helped us develop the short list for the next $5
note. As we continue to think about a potential central bank digital currency, we
know that universal accessibility would have to be part of the design.
We have stepped up efforts to engage with a wide variety of groups and
understand their diverse perspectives. For example, we helped found the Central
Bank Network for Indigenous Inclusion, partnering with the Tulo Centre of
Indigenous Economics here in Canada and with central banks in Australia and
New Zealand. This group will help us gain a better understanding of the
economic realities of Indigenous peoples.
And when we set out to review our inflation-targeting framework with the federal
government, we made it a priority to look at how our framework affects different
groups in society. We invited all Canadians to participate in the renewal process
and published a report on what we heard.9 One message that came through
clearly is that Canadians want our policies to be fair for everyone.
In responding to the pandemic, we've paid close attention to its very uneven
impacts across sectors and workers. We are also looking at how the monetary
we've deployed,
policy tools including quantitative easing (QE), are affecting
inequality. Of course, changes in monetary policy always have consequences for
how both income and wealth are distributed. Similar to reducing interest rates,
QE works to stimulate demand by lowering borrowing costs and encouraging
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supports job creation, and it's clear that the single biggest
spending. This
contributor to reducing income inequality is making sure people have jobs.
At the same time, our policy interest rate and QE also affect the prices of
assets-and not just government bonds. QE can boost wealth by increasing the
value of assets such as the investments Canadians have in their registered
retirement savings plans or company pension plans. But of course, these assets
aren't distributed evenly across society.
As a result, QE can widen wealth
inequality. We will look closely at the outcomes of QE here and elsewhere and
will work to more fully understand its impact on both income and wealth
inequality.
Diversity and inclusion in our profession
it's an important one,
Now, the Bank of Canada is just one organization. But
especially in economics and finance, and we can help set the tone in these fields
in Canada.
there's work to
We know do. Around the end of 2019, the Canadian Women
Economists Committee of the Canadian Economics Association surveyed people
working in the field.10 The Committee wanted to get a sense of opinions and
attitudes about equity, diversity and inclusion in Canadian economics. The
survey found 40 percent of female economists with more than 10 years of
experience said they had been treated unfairly based on their gender.
Economists of non-European background were six times more likely to say they
had been discriminated against. And a full 70 percent of economists living with a
weren't respected on the job,
disability said they compared with 30 percent of
economists without a disability. The group Women in Capital Markets heard
similar messages in its 2019 survey of 600 finance professionals.11
These results are discouraging, but I don't want you to be
discouraged. To
improve, we need to be willing and able to measure ourselves and see where we
are falling short. And many organizations are working to improve diversity and
inclusion in the profession. It is imperative that diverse, talented, young people
like yourselves can find good careers in economics and finance. We need all
your experiences and perspectives and all the creativity you can bring. We need
your help to solve the myriad challenges facing us today and tomorrow.
Why it matters for the economy
This brings me to the last point I want to make before our discussion. Diversity
and inclusion make the entire economy stronger.
Here's how it works.
Each company can pursue diversity and inclusion in its own
workforce to bring in the best talent and create a competitive advantage for itself.
That's good for the business.
At the same time, when companies pursue a more diverse and inclusive
workforce, more opportunities become available in the economy for women, for
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Indigenous people, for new immigrants, for racialized Canadians and for
Canadians living with disabilities. By drawing these workers into the labour
market, companies increase the size of our labour force, which increases the
economy's potential output. That's good for
workers and for our economy.
And what's good for workers and the economy is good for
business. More
workers mean more income in the economy. For companies, more people
earning income mean more customers with spending power, and that means
more demand for their goods and services.
It's a virtuous
In short, shared economic prosperity means more prosperity.
circle. And economic research is increasingly highlighting that the stakes are
enormous. Let me mention a couple of studies. One recent paper published in
Econometrica finds that 50 years of discriminatory employment practices in the
United States have cost that economy up to 40 percent of its productivity and
output.12 Research by the International Monetary Fund suggests the precise
impact of diversity and inclusion will vary from country to country but, in all cases,
the potential gains are large.13
Now, what can monetary policy do to bring about a more inclusive economy?
instrument that can't target
After all, monetary policy is a broad macroeconomic
specific groups.
What we can and must do is keep the benefits of inclusion in mind while
implementing monetary policy. This idea is not new, but the very unequal impacts
of the pandemic are making action more urgent than ever.
Inequality has long been a concern of the Bank of Canada. Our focus on inflation
control has always recognized that inflation is particularly tough for poorer
Canadians and for those on fixed incomes because they are most affected when
the purchasing power of cash declines. Years of low and stable inflation haven't
made us complacent about the potential threat these groups face.14 We also
know that the most vulnerable employees are hit the hardest by the boom and
12
See, for example, C.-T. Hsieh, E. Hurst, C. J. Jones and P. J. Klenow, "The Allocation of Talent
"Racism
and U.S. Economic Growth," Econometrica 87, no. 5 (2019): 1439-1474; L. D. Cook,
Impoverishes the Whole Economy," The New York Times (November 18, 2020); D. M. Peterson
and C. L. Mann, "Closing the Racial Inequality Gaps," Citi GPS: Global Perspectives & Solutions
(September 2020); and C. Lagarde and J. Ostry, "The Macroeconomic Benefits of Gender
VoxEU.org
Diversity," (December 5, 2018).
13
See J. D. Ostry, J. Alvarez, R. A. Espinoza and C. Papageorgiou, "Economic Gains from Gender
International Monetary Fund
Inclusion: New Mechanisms, New Evidence," Staff Discussion Note
Losavio, "What
No. 18/06 (October 8, 2018); J. Racism Costs Us All," Finance & Development
Wright, "The Economic
(September 2020): 32-35; and N. Noel, D. Pinder, S. Stewart III and J.
Impact of Closing the Racial Wealth Gap," McKinsey & Company (August 13, 2019).
14
See S. Cao, C. A. Meh, J.-V. Rios-Rull and Y. Terajima, "The Welfare Cost of Inflation
Revisited: The Role of Financial Innovation and Household Heterogeneity," Journal of Monetary
Terajima,
Economics 118 (March 2021): 366-380; C. A. Meh, J.-V. Rios-Rull and Y. "Aggregate
and Welfare Effects of Redistribution of Wealth Under Inflation and Price-Level Targeting,"
Journal of Monetary Economics 57, no. 6 (September 2010): 637-652; and M. Doepke and
Schneider, "Inflation and the Redistribution of Nominal
M. Wealth," Journal of Political Economy
114, no. 6 (December 2006): 1069-1097.
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bust economic cycles that come with high and variable inflation.15 Keeping
inflation low, stable and predictable promotes a stronger and more stable
economy, with greater opportunities for everyone.
Today, we are in the sharpest and most unequal economic cycle in our lifetime.
And the Bank has pledged to support Canadian households and businesses
through the full length of the recovery by holding our policy rate at its effective
lower bound until the spare capacity in the economy is used up, so that we
sustainably achieve our 2 percent inflation target. In other words, we will use our
monetary policy tools to support a complete recovery and achieve our inflation
goal.
What does a complete recovery look like? A complete recovery is a shared
recovery. If you're a worker looking for job, it means a healthy job market with
good opportunities. And that needs to include the workers most affected by this
pandemic: low-wage earners, women, youth and racialized Canadians. It means
that we've not only recovered the jobs lost due to the pandemic, but
we have
also created jobs for graduating students and others who have entered the job
market since the start of the pandemic. For businesses, a complete recovery
means they have confidence that the pandemic and its effects are well behind
us, demand for goods or services has come back, and they are looking to add
capacity and invest in new opportunities. And for households and businesses, a
complete recovery means they can make financial plans knowing they can count
on inflation being sustainably at our 2 percent target.
Let me end off where I started. Universities are wonderful places, where diverse
students receive the education that leads to opportunity and shared prosperity. I
am very pleased to have the opportunity to speak to so many students,
graduates, faculty, staff and friends of Atlantic Canadian universities. And I want
to salute your universities for their long tradition of inclusive access to education.
Now I look forward to hearing from you and having a good discussion.