Federal cuts could push unemployment to 8%

Now that the government is planning for an $8 billion cut,  the potential job losses could drive job losses to between 99,000 and 108,000 full time positions across Canada.  At this much higher level, the federal government could be single-handedly responsible for pushing national unemployment from its current 7.5% to 8.0%.  About half of those losses would be federal public servants and half would be in the private sector (crown corporations, non-profits and government contractors).

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  • I project a crash in employment much beyond 100K, I predict on our current pathway we will see a loss of 500K jobs minimum.

    My huge fear is the following causal chain.

    We have been relying on our resource extraction economy to help us make it through this downturn.

    – however, the dollar suffers because of the dutch disease and commodity speculation

    – manufacturing and forestry heartland of Ontario and Quebec gets beaten by the downturn and we lose over 600K jobs in manufacturing and over 200K in forestry since 2005 accelerating substantively in 2007.

    – housing boom and construction jobs (still at all time highs), resource extraction in the private sector and a strong public sector keep the winds in our economic sail. Domestic demand is propped up by consumer debt which is now most likely at its peak and against the wall.

    – however, it is a very delicate balance and the losses in manufacturing are not sustainable unless we get some longer term solutions, but none arrive because of govt policy.

    – austerity starts setting in at three levels,- take Ontario, Rob Ford in TO will cut, the Drummond report in Ontario will cut and now Harper’s upcoming budget will cut, and all of the cuts seem to be heavily focused on public sector employment.

    – this creates a strong negative push into the labour market and all the delicate balance between taxation and private public sectors sets about a self fulfilling goal of ratcheting down domestic demand.

    – this creates new pressures on consumer debt, but because we are up against the debt wall, we start having pressure on the housing bubble. We either slowly deflate the bubble or it bursts. The point is, though, it will deflate without more consumers buying inflated housing.

    – this creates two effects, first, consumption declines because of falling housing prices, even CMHC mortgages will decline. Secondly, this hits the construction sector, which as stated is the great, albeit short run equalizer for the declining manufacturing sector. More high paying jobs are trashed in construction.

    – So now everybody losing a job basically finds employment in the increasingly precariousness of work which accelerates. Backed up by some very poor stripped down social safety nets and we are all soon working at Wal-MArt.

    – so my 500K minimum jobs lost do not include precarious work effects.

    so in the end my jobs lost would include

    – 100k or more from public service cuts across the country
    – 250k in construction as the housing bubble slows
    – 100k in manufacturing as the high dollar continues to take its toll.

    Call me a pessimist, I can take it.

    By the way did anybody notice Philip Cross quit statcan, and did you take note of his remarks regarding how well the replacement voluntary survey went!

    The key words in his departure- the new voluntary replacement census had a response rate of 69%. But as he stated as bad as that is, that does not include item non-response, meaning a survey could come back with just a name filled in and you were declared a response. Which means a whole lot of blank questionnaires and cells. Mass imputation has its uses and abuses!?

  • I don’t think I’m quite as pessimistic as you Paul, but you’re right that there are serious downside risks here and a contractionary policy from the federal government that matches the coming austerity at the provincial levels spells bad news for Canadians.

  • Yes i probably am a bit off, but if you factor in downstream jobs, especially if we see construction falter, who knows. I am sure the multipliers from the public sector alone must behave to be 3-1.

  • Ok but just imagine the multi is 1. And imagine that employment stays a 7.4% for the next two years because of austerity in the public sector. What the government is basically doing is ensuring that cyclical unemployment becomes structural. And you can get to that critique using off the shelf turn key macro.

    There is zero rational for public austerity. Even the so called structural deficit could be solved via a promise by the government to hike the GST by 2 cents when and if the recovery takes hold (defined as 6% unemployment or less). If the NDP was smart that is what they would be demanding the government do. Hell even Flash Gordon would have to praise the idea.

  • Travis wrote:

    “There is zero rational for public austerity.”

    Well, it does keep the plebs good and docile, not to mention it’s perfectly ideological for neo-libs to do this sort of thing.

  • “Well, it does keep the plebs good and docile, not to mention it’s perfectly ideological for neo-libs to do this sort of thing.”

    Yep and they have four years left so if the economy is in the toilet 3 years from now they can send suitcases full of cash to conservative districts and make it seem like a recovery has started and rationalize austerity. It is not so much genius rather it is pure cynicism.

  • Their goal is to suppress wages by creating a labour surplus…

    Unfortunately it is being done by eviscerating the middle class and causing mass misery…

    The other compounding factor is the rising price of food

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