More on Declining Labour Force Participation

As a supplement to the excellent (and more timely!) posts from Andrew and Erin this morning, let me add a few points on the most striking feature of today’s Labour Force Survey: namely, the accelerating decline in labour force participation.

The part rate (seasonally adjusted) fell to 66.5% of the working age population (remember, Stats Can defines working age broadly as everyone over 15).  This continues a trend toward falling participation since the recession hit.  The pre-recession peak participation rate was 67.8% (reached in spring 2008).

That 1.3-point decline in the participation rate is equivalent to the loss of 366,000 potential workers from Canada’s labour force — compared to what it would have been had the pre-recession participation rate been maintained. 

This is a key reason why the official unemployment rate vastly understates the true degree of slackness in the labour market.  If those post-recession non-participants were included in the labour force, the unemployment rate would be 9.2 percent (instead of the official 7.4 percent).  Throw in involuntary part-time employment and other indicators of underutilization, and it’s clear that Canada’s true unemployment rate is well into the double digits.

The February participation rate was the lowest since March 2002 (a decade ago).  And it was no higher than the participation rate in1987 (a generation ago).  That means a quarter-century of rising participation (driven largely by women’s formal participation) has been squandered by the crisis and subsequent non-recovery.

It’s common for participation rates to decline in the wake of a recession and subsequent slow recovery.  In the early 1990s, for example, the participation rate fell by over 2 points until the jobs recovery really took hold in the last part of that decade.

Canadians aren’t stupid: if there are no jobs, they won’t “actively seek” them, hence they disappear from the labour market.  That brings down the official unemployment rate (convenient for politicians).  But the crucial test for society is whether people are working and producing, or not.  By that score, the languishing employment rate (now back down to 61.6%, just a smidge above the mid-recession trough of 61.3% … and far below the pre-recession peak of 63.8%) is hard proof that Canadian workers continue to face a recession — with a capital ‘R’.

17 comments

  • But this is is only a recesission for the middle class…the rich are doing great!

  • During the Great Depression….many rich folks made a fortune off the fact that people would work insanely hard for any wage…

    It was fake…Human Resource strategy to bring the middle class to heel…work hard for nothing.. Much like now…

  • “During the Great Depression….many rich folks made a fortune off the fact that people would work insanely hard for any wage”

    During the Great Depression….many folks watched prices collapse; worked for wages less then 4$ an hour. Many folk saved pennies because of Deflation. Prices for Energy, Food, Shelter, Education collapsed.

    Today the middle class will be wiped out by rising or increasing prices for basic necessities. Food, Energy, Education, Fees for maintainence, or insurance. Housing is in a bubble, it will collapse in price. We will be faced with stagflation of the 70s where falling prices for items as Housing will not offset rising prices elsewhere due to the amount of private debt accumulated during this recession. Housing can only be an offset for rising prices for Canadian’s who have no mortgage debt; who would be effected quite differently. By the way wages today have not matched prices in general, the gap is larger for the basics. Inflation is wreaked havoc over the middle class.

  • Housing can only be an offset for rising prices for Canadian’s who have no mortgage debt; who would be effected quite differently by 5%, 10%, 15% to greater drop in home prices.***

  • Canadians with mortgage debt will become slaughtered as falling prices tied to their debtload which doesn’t decrease, as they watch prices rise for the cost of just living a day. Thats my future. Our future.

  • I do not see deflation for all prices at all till higher interest rates are enacted by the bank of Canada since they cant stay low indefinitely creating negative rates of interest. I think these rates are unwarranted, and have been for sometime encouraging to many young canadians into a housing market accumulating debt they cannot afford when rates reset much higher a few years from now, wether they locked in current rates, or not.

  • The fact participantion rate is so, can imply we currently our still contracting, that there is no recovery.

  • Lower labor force rate aren’t signifies unemployment maybe the technology are progressively develop to reduced labor force. But it doesn’t mean that unemployment goes up, it just people are now find a new career.

  • Er, working age is age 15 to 64, not over 15. Which strengthens your argument since decline of the part rate is not due to an aging workforce.

  • Jim: Wanted to say great job with your appearance on TVO agenda regarding Ontario jobs. I especially like your comment about the deficit not really existing if growth had kept on trend.

    Jim, Erin, Andrew: Great work with the comments in general, I hope someone is listening. Couple of things:

    1. Structural unemployment: I heard the structural argument rolled out again this past week. I know you’ve addressed this before, I wonder why it is so strong. I’ve applied to lots of jobs I am 90% qualified for. It seems to me employers want the “perfect” new employee able to generate profits for them with no work needed on their end. How did this become such a one way street. Did employers not play a role in training in the past?

    2. Research: Related to #1, it seems that we now want to privatize the profits from NRC research. Is this just a matter of keep asking until they say no. I understand that commercial success benefits all of us, but wasn’t business able to do this for itself once upon a time (before government got so big :))

    3. Productivity: We are all ready able to produce far more than we need with much less than full employment. Why do we keep harping on productivity? Especially, why does a TD Banker (TVO Agenda) keep bringing it up, seems they don’t produce much of any use, but create lots of great risk.

    4. Deficit and Growth: Do you think Canada’s shrinking deficit and the USA’s growing deficit in January have anything to do with the respective job numbers we’ve been seeing?

    5. Federal Budget: We’ve already got lots of unemployment, how can we reasonably believe that people losing their government jobs will be “absorbed” by the private sector.

    Sorry, bit of a rant. I realize that we are mostly on the same page here at PEF.

  • Brandon…they are some differences but ultimately we are currently in the Great Depression 2.0

    A situation where everyone wil work themselves to the bone for almost nothing…

    To the benefit of the rich who are intent on crushing the
    middle class into serf level poverty to add to their vast
    fortunes…

    It all comes down to the downward wage spiral…which kills purchasing power….which kills jobs…..which kills purchasing power…which kills jobs…ad infinitum…

    As soon as fair wages are implemented thenstart matching costs, then, this “recession”
    Is over…

  • Fair living wages that match living costs are the key to ending…this “recession” for average Canadian families….

  • Comment from Doc Manderly 
    Time: March 15, 2012, 2:43 pm

    Brandon…they are some differences but ultimately we are currently in the Great Depression 2.0

    A situation where everyone will work themselves to the bone for almost nothing…

    To the benefit of the rich who are intent on crushing the 
    middle class into serf level poverty to add to their vast
    fortunes…

    It all comes down to the downward wage spiral…which kills purchasing power….which kills jobs…..which kills purchasing power…which kills jobs…ad infinitum…

    As soon as fair living wages are implemented that match costs, then, this middle class only“recession”
     is over!

    Just like Canada did in the post WW2  period…

  • Fair living wages that match living costs…which will only lead to higher living costs..we will need…New Fair Living Wages…..to match new living costs. That is not a soluting ever-increasing prices Doc Manderly, or ending a rescession.

  • Canada post worl war 2, we were still on a gold standard, and a gallon of gas was less then 18 cents, there was massive deflation. Then compared today adjust for inflation.

  • Again it is The Great Depression 2.0.

    Doc, and T Mandeerly, it however will be the greatest inflationary depression for economits to write future books, and essays for years to come.

    Example we wont have dreaded deflation untill the US Treasury Secretary Timmy Geithner defualts on US debt, where every dollar in USD you have, you get 10 cent back. Then, yes, The Great Depression of Deflation would occur. Which wont happen till after the US defualts.

    The US participation is also a shell of its former self, implying no recovery.

  • Brandon L.,
    the U.S. will never default because of a ‘real’ structural impediment. It has a sovereign currency and therefore it’s impossible for it to ever be insolvent (sounds crazy at firtst but look into Modern Monetary Theory for a full explanattion).
    The only way the U.S. could ever default is due to a political decision which would be likely if the Tea partiers ever take control of Congress.

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