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Austerity Bites, Employment Rate Falls Again

Today’s labour force numbers are ugly, there’s no other word for it. Employment down 29,000 jobs.Paid employment (ie. not counting self-employment) down 46,000 jobs. The only reason the unemployment rate held steady (at 6.9%) is because labour force participation fell again: by almost 2 tenths of a point, to just over 66%.That’s the lowest level of labour force participation since 2001. Convenient for suppressing the headline unemployment rate, but socially destructive and very costly in the long-run (as more and more Canadians lose contact with the labour market).

In a weak macroeconomy, the employment rate is a better indicator of labour market strength, since it avoids the arbitrary distinction regarding whether someone is sufficiently “active” in their job search to qualify as being officially “in” the labour market. The employment rate also fell 0.2 points in April, to under 61.5%. That’s the lowest employment rate recorded since March 2010 (as the economy was starting to claw its way back from the worst of the recession).In fact, today’s employment rate is hardly any higher than the low point reached in July 2009 (61.3%), when the recession officially ended (ha!) and real GDP began to grow again. The employment rate has been declining fairly steadily since late 2012, and has slipped over half of a point in that time.

Emp Rate to April 2014

Source: Statistics Canada Labour Force, CANSIM Table 282-0087, population 15+.

The figure illustrates the sharp fall of the employment rate during the recession, the initial partial recovery during 2010 (when government had its foot on the stimulus gas pedal), but then the reversal of that partial progress in subsequent years (as government switched from gas to brake, and austerity became the dominant theme of fiscal policy).  Less than a tenth of the damage done to the employment rate in the recession, has been repaired.  This exposes the federal government’s claim that Canada’s labour market has recovered from the recession as desperate spin-doctoring.  Since more Canadians are working today than before the recession, they claim, they’ve handled things well.  They must believe we all fell off the turnip truck yesterday — because we couldn’t possibly figure out that since the working age population grew by 2 million in that time, we might need just a few more jobs than we had in September 2008 in order to achieve the same supply-demand balance.  To restore the employment rate back to its pre-recession peak would require an additional 665,000 jobs in Canada.  That’s the true unrepaired damage remaining from the recession.

The erosion of Canada’s labour market performance over the last couple of years is not surprising in light of the general stagnation of the main drivers of economic growth in our system.  The main potential engines of output, income, and employment are: business non-residential investment, exports, government spending (on consumption and investment), housing construction (residential investment), and consumer spending.  The first four are the autonomous (or leading) sources of demand.  The last one, consumer spending, normally tends to follow incomes in the long-run — although it can strike out on its own when unusual borrowing allows consumers to spend more than they make.  Rising consumer debt (despite lots of hand-wringing by finance ministers and central bank governors) is still allowing this to happen.  Consumer spending has been the most consistent source of new spending power in Canada since the recession.  But how long can it last, without new jobs and rising incomes for working people?

The second figure shows the contribution to GDP growth made by the major components of demand in the year ending in the 4th quarter of 2013.  It illustrates starkly that Canada’s economy has no engine.  Housing, business investment, and government all declined slightly in the year (the last reflecting austerity policies at all levels of government).  The trade sector improved slightly in 2013 — though is still mired deeply in deficit (with a $60 billion current account deficit, 4 times bigger than the federal government deficit).  Indeed, the trade deficit has deteriorated again in the last couple of months.  Consumers, so long as they are prepared to keep borrowing and spending like drunken sailors, are the only thing saving our bacon.  The other big source of GDP growth through 2013 was inventory accumulation. Yikes!  That’s not something you want to build a recovery on: rather, it’s a sign that sales are already weaker than expected, meaning future cutbacks in production are likely.

No Engine

Source: Author’s calculations from Statistics Canada CANSIM Table 380-0106.

The private sector isn’t leading growth in Canada (neither through investment nor exports).  In the absence of private sector leadership, the government must lead the way with more investment and spending, not less.  But the ideology of austerity is doing the opposite.  No wonder Canada’s labour market is slipping back into a recession-like funk (and the official unemployment rate doesn’t tell the whole story of that funk).

A couple of other tidbits from today’s report: Ontario created 18,000 jobs in April (26,000 full-time jobs, offset a bit by a loss of part-time jobs).  That’s way more than any other province.  Not convenient for the strange interventions by Harper government officials in the current Ontario election campaign (with federal cabinet ministers and other spokespeople jumping into the fray in support of Tim Hudak’s talking points).

Second, this month’s Daily featured a new sub-section comparing Canadian and U.S. unemployment rates, using a consistent (ie. U.S. style) methodology for measuring active job search.  The Americans had another good month in April, and their unemployment rate is now down to 6.3%.  Someone in Statistics Canada (perhaps with some helpful advice from the PMO??) probably felt sensitive about the widening and unfavourable unemployment rate gap between the two countries — and hence took it upon themselves to explain that if you use consistent statistical definitions, Canada is still slightly better than the U.S. (our unemployment rate would be 6.0% using U.S. definitions).  That’s legitimate from a statistical perspective, but won’t change the perception that Canada’s relative performance is slipping badly.

The government’s claim to have weathered the recession better than anyone else on the planet was never remotely true.  But it’s getting less and less true by the month.

Comments

Comment from Paul Tulloch
Time: May 9, 2014, 12:33 pm

The following labour market rates were affected badly by recession but still have not rebounded – long term unemployment is double the normal, part- time but wanting full time work is still almost double, part-time to full time work ratio is far above its normal, those working multiple jobs are elevated by 300k compared to pre-recession, women’s employment rate is declining something it has not done in 30 years- men employment rate still stuck 3% below its pre-recession levels, youth unemployment rate is still several percentage points above pre-recession rates that were already well above anything close to normal, and the proportion of the 3 lowest paid major occupational groups is climbing at a record pace.

I will be following these measures on my website using various trend estimates. Also will combining them into a measure using a standardization process that will build a vehicle to allow an ongoing monitoring to evaluate just how well the labour markets are responding.

I will also be adding in unionization rates, and EI coverage and potentially two other variables.

These measures will be calculated by province and gender.

Comment from Bren
Time: May 9, 2014, 2:22 pm

Ageing has had a significant impact! The employment rate of 25-54 year olds was 82.3 in 2008, 80.3 in 2009, 81.5 in 2013

Comment from James bowles
Time: May 9, 2014, 3:56 pm

Is this true. It looks to me like the government is selling us out.

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20,000 young workers headed to Canada outside foreign workers program that has come under scrutiny

The influx follows a spirited campaign by the federal government to attract skilled workers from abroad, including a 2012 trip to Ireland by Jason…more

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BY LEE-ANNE GOODMAN, THE CANADIAN PRESS APRIL 29, 2014

OTTAWA — Are you an employer keen to hire help from abroad, but nervous about the controversy dogging Ottawa’s temporary foreign worker program?

The government of Canada may have a solution for you.

Under the International Experience Canada program, as many as 20,000 workers aged 18 to 35 will soon be coming to Canada — just as Canadian youth begin pounding the pavement in search of summer jobs.

The program allows employers to bypass the labour market opinion process, which means there’s no need for government approval. As well, companies are not obliged to pay their workers the prevailing market wage.

The influx follows a spirited campaign by the government to attract skilled workers from abroad, including a 2012 trip to Ireland by Jason Kenney, then the immigration minister, to encourage skilled workers to come to Canada.

More than half of those arriving on IEC visas are Irish and some are staying for as long as two years. The top countries of participation are France, Ireland, Australia, the United Kingdom, Germany, Japan, Korea and New Zealand.

“Make your dream of travelling and working abroad a reality! International Experience Canada gives you the information and resources you need to travel and work in Canada,” beckons the promotional material on the government of Canada website.

In exchange, Canadians can apply to work in 32 participating countries that also include Ukraine, Slovenia and Slovakia. Government data, however, indicates that more than three times as many foreigners come to Canada under the program than the other way around.

Doug Parton of the Ironworkers Union in B.C. has called on the government to crack down on the IEC, saying there are no skills assessments of the incoming workers and no requirement that companies pay workers the prevailing wage rate.

“It’s a complete free-for-all and it’s an attack on wages,” said Parton, the business agent for Ironworkers local 97, which represents structural and reinforcing ironworkers in B.C.

Parton claims mines in B.C. are taking advantage of the program to bring in non-Canadian workers with none of the “checks and balances” ostensibly in place under the broader temporary foreign worker program.

One company in particular, Parton said, has been routinely bringing over dozens of temporary foreign workers under the program for more than a decade and paying them $13 an hour while providing no training or apprenticeship opportunities to domestic workers.

“There’s been no commitment to our young Canadian workers; doors are getting slammed shut on them because companies are bringing in cheaper workers from other countries,” he said.

“No one’s anti-immigration — that’s not what this is about — it’s about making sure Canadian workers aren’t squeezed out of jobs by abusers of these programs.”

Alexis Pavlich, a spokeswoman for Citizenship and Immigration Minister Chris Alexander, defended the program, which has existed since 1951.

“The IEC is a long-standing and popular program that enables limited numbers of young Canadians and foreign nationals to participate in a travel, live and work abroad cultural and economic exchange program,” Pavlich said in an email.

“Past program participants with in-demand skills and relevant experience may apply to immigrate to Canada. Our government’s priority will always be to ensure Canadians are given first crack at available jobs.”

Pavlich added the program is under review, along with the broader temporary foreign worker program, “to ensure that it meets Canada’s needs and interests.”

Liberal MP John McCallum, the party’s immigration critic, expressed dismay.

“It sounds like such a wholesome thing on the government’s website — people coming to discover Canada and Canadians going abroad to do the same,” McCallum said in an interview.

“But this is a huge concern because it seems to totally subvert what they’re trying to do with temporary foreign workers.

“The government appears to be actively encouraging companies to participate in a program that doesn’t even require labour market opinions.”

He accused the Tories of startling inconsistency.

“On the one hand they’re saying, ‘Do whatever you want,’ and on the other hand they’re saying, ‘We have a moratorium.’ That’s not exactly speaking with one voice.”

© Copyright (c) THE CANADIAN PRESS

Comment from Jim Stanford
Time: May 9, 2014, 5:26 pm

Some commentators on twitter have suggested if you use narrower age categories the trend in the employment and participation rates is not as bad. Is is true the extent of the decline in both of these “prime age” categories is not as dramatic, but still clear and still worsening. For 15-64 employment rate in April was 72.25%, down 1.65 points from pre-recession peak. For 25-54, it was 81.1%, down 1.45% from pre-recession peak. For both categories, avg participation so far in 2014 is lowest since 2002 (vs. 2001 for the whole 15+ grouping). The increase in older worker participation and employment (partly pushed by pension insecurity) has been substantial, so this segment can’t be ignored. Thanks to Bren above and Luke Kawa on twitter for reminding that demographics are a key factor here and that the definition of WAP needs to be specified.

Comment from Darwin
Time: May 10, 2014, 12:19 am

M. Stanford, j’ai adoré votre livre d’introduction à l’économie. Je l’ai cité de nombreuses fois. Mais là, désolé, mais votre analyse est soit démagogique ou basée sur votre ignorance des données sur l’emploi.

http://jeanneemard.wordpress.com/2014/05/09/lemploi-toujours-lemploi/

Comment from Jim Stanford
Time: May 11, 2014, 5:55 pm

A couple of more points on the relative role of demographic ageing vs. continuing lack of labour demand in explaining the decline in the overall employment & participation rates. The qualitative conclusion still applies even to so-called “core” age categories (a distinction which is fuzzier & fuzzier at any rate due to growth in participation & employment in the 65+ years). Most of damage done to employment rate in the recession is still unrepaired in both the 25-54 and 15-64 age groups. Participation rate in both is falling; avg participation so far in 2014 lowest since 2002. Can’t blame either of those outcomes on demographics.

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