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The Progressive Economics Forum

Canadians Giving Up on the World of Work

The glaring contrast between employment numbers, and the unemployment rate, was highlighted by today’s labour force numbers from Statistics Canada (capably dissected elsewhere on this blog by Angella MacEwan).

Paid employment (ie. employees) declined by 46,000.  Total employment (including self-employment) fell by 22,000.  Yet the unemployment rate fell to 7% — its lowest level since late 2008.

Fewer people were working, yet the unemployment rate declined.  What gives?

Especially during times of economic weakness, the official unemployment rate is a bad measure of the state of the overall labour market, for familiar reasons: to qualify as officially unemployed, an individual has to be considered to be “participating” in the labour market.  If you are not working, participation requires an active job search.  A non-employed person who gives up looking, is no longer in the labour market — conveniently disappearing from the official jobloess tally.

Einstein defined insanity as doing the same thing over and over again, but expecting a different result.  Canadians are not insane: so if they put in 100 resumes with no job offer, they might reconsider putting in the 101st.  The supposed disincentives of our EI system can’t be blamed for this, given that most unemployed people don’t get EI benefits at all.  In fact, if anything the EI program could conceivably be supporting formal participation, by virtue of the “tough love” job search requirements that the EI police now more stridently enforce.

Ominously, labour force participation is still falling — five straight years now of disengagement by Canadians from the world of work.  Overall participation fell to 66.6% (rounded UP, and seasonally adjusted).  Compared to peak pre-recession participation, participation has declined almost 2 full points.  That decline in participation corresponds to the disappearance of 355,000 Canadian workers — and that discouraged army gets bigger every month.

For a sense of scale, imagine putting 355,000 Canadians to work.  At average productivity and wages, they would add $38 billion to Canadian GDP, and close to $15 billion to government revenues.

The employment rate measures the proportion of working age Canadians who actually have a job.  It thus steps back from the increasingly arbitrary issue of whether a non-employed person is searching for (non-existent) work with sufficient vigour.  It is a better indicator of labour market well-being than the unemployment rate — especially during times of macroeconomic weakness.

The employment rate fell by 0.2 points in January (seasonally adjusted), to 61.9 percent.  That’s the same level it was two years ago.  All the jobs created by Canada since the beginning of 2011 have been only sufficient to keep up with population growth — not to offset any of the lasting damage from the recession.  The peak pre-recession employment rate was 63.8 percent.  It plunged to 61.3% by the summer of 2009, and then has been “bouncing along the bottom” ever since.  Less than one-quarter of that decline in the employment rate during the recession has been recouped by the subsequent halting “recovery.”

Measured (appropriately) by the employment rate, Canada’s labour market is hardly any better than it was during the worst days of the recession.  The simple-minded claim by the government that all the jobs lost in the recession have been recouped, and then some, is bankrupt: with Canada’s population growing at close to 1.5% per year, we need to be creating hundreds of thousands of additional jobs, in order to claw back the decline in the employment rate.

The erosion of labour force participation by Canadians is a highly negative development, imposing a wide range of short-run and long-run costs on our economy and society.  Focusing on the unemployment rate misses this dangerous story entirely.

The following cartoon, done by Tony Biddle for my book Economics for Everyone, sums up the technical issue perfectly.  The most bitter twist of all: the bespectacled nerd from StatsCan has also lost his job, thanks to the Harper government’s cuts to the department!

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Comments

Comment from Paul Tulloch
Time: February 9, 2013, 11:04 am

I agree that the unemployment rate at the R4 is exclusionary and its usefulness is thereby blunted- however I am unsure that the employment rate on its own is a better measure. There are reasons for not wanting to work and the employment rate introduces more misinformation into the stream rather than clarifying it, especially when one considers age and training related issues. I prefer the R8 over employment rate as it includes discouraged workers and a proportion of underemployment. Sadly these supplemental rates are limited in publishing, and receive minimal attention from Statistics Canada or other statistical agencies I do agree though that when stuck with the R4 it is helpful to look at the employment rate and assess the variance in the employment rate as that is where we will see the discouraged self identify.

This is premised on the following definition of employment rate from Statcan.

The employment rate (formerly the employment/population ratio) is the number of persons employed expressed as a percentage of the population 15 years of age and over. The employment rate for a particular group (age, sex, marital status) is the number employed in that group expressed as a percentage of the population for that group. Estimates are percentages, rounded to the nearest tenth.

Comment from John Richmond
Time: February 9, 2013, 11:21 am

I am sending this great piece to Javier Vega at Telesur’s program Impacto Economico

Comment from Paul Tulloch
Time: February 9, 2013, 1:27 pm

Bottomline- both have imperfections, and it is true that when an economy has upheaval, (which depending on your socio-economic status could mean always), you will have a variance to the flows out of employment that displays distortions to the traditional patterns of not being considered part of the labour force- and has a larger component of error- i.e. a larger false negative and under those circumstances employment rate is more desirable.

It is why I would recommend Statistics Canada make use of the R8 instead of the R4- however there is a long tradition of political economy to statistics, and this as we have seen under Harper who has come truly into being with some monumental attacks on statistics and pushed the former debates into the shadows.

The question I have now- given the census debacle- how can we contain the error rating on these estimates as they have undoubtedly grown beyond reasonable. Without a proper benchmarking to good census labour force big sample estimates, then I am not sure what we are measuring when we call it unemployed regardless of how we define it.

It is a sad long song that we must all sing- and it will cost billions to rebuild as it was so easily thrown into the fire. It truly is amazing how democracy can be ditched by one small group. It truly is amazing- and costly.

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