Reviewing The State Of The Labour Market

Earlier this month, Statistics Canada released its Labour Force Survey (LFS) data for November, once again giving us occasion to review the state of the labour market. This time around, the jobs report was a mix of good news and bad. In some senses, the labour market is rebounding after over a year of slackening. At the same time, unemployment is up and a growing number of workers are without jobs. What gives?

As StatCan’s summary of the LFS data indicates, the Canadian economy netted 51,000 jobs last month, a decent number by recent comparison. Moreover, these employment gains were concentrated in full-time work, a positive note. Though it continues to slowly decelerate, nominal wage growth also remained healthy at 4.1 per cent on an annual basis (compared to 4.9 per cent growth the year prior).

The public sector accounted for the overwhelming majority of new employment growth, netting 45,000 new positions. Some economists and business commentators worry that having job growth concentrated in the public sector is a sign of an under-performing private sector. But given what we know about persistent staffing shortages in health care, education and other public services, robust public sector job growth is nothing to worry about. Indeed, as StatCan’s LFS summary notes, healthcare, social assistance and educational services accounted for the majority of November’s job gains.

In the private sector itself, employment did grow slightly in wholesale and retail trade, construction, professional, scientific, and technical services, and food and accommodation. By contrast, jobs were down in manufacturing, warehousing and transportation, and natural resources.

Despite November’s respectable job growth, however, unemployment jumped to 6.8 per cent, up from 6.5 per cent in October and up a full 1.7 percentage points above where it was in April 2023. Excluding the lock down period of the pandemic in 2020 and 2021, unemployment is now the highest it’s been since January 2017.

The number of unemployed people increased by 87,000 in November, a 6.1 per cent increase from the previous month. This brings the total number of officially unemployed workers in Canada to roughly 1.5 million. Compared with one year ago, the number of the unemployed was up by a startling 22.2 per cent. Also troubling, the share of the long-term unemployed — those without work for 27 weeks or more — grew by 5.9 percentage points from a year earlier and stood at 21.7 per cent of the jobless.

So, how did we wind up in a situation where employment and unemployment grew at the same time?

The answer is that the number of workers “participating” in the labour market (i.e., actively looking for work), also grew considerably in November. As many observers have been highlighting for a while, Canada’s rapid population growth over the past year or two is partly to blame. Even fairly robust job creation has not kept pace with rising immigration. Persistent youth unemployment has been one notable consequence of this problem.

Yet population growth is not the full picture.

More accurately, the number of unemployed people is up because a larger share of those who were previously out of work but not actively looking for a job — whether because no work was available, they were too discouraged or for some other reason — are now on the hunt for work. Indeed, 46.3 per cent of unemployed job seekers in November had not worked in the last year or had never worked. A year ago, that share was 39.5 per cent. Meanwhile, the shares of the unemployed who had recently lost a job or left one voluntarily were both down last month.

You can imagine the problem like this: Suppose there’s a room with 100 people in it but only 94 chairs and everyone wants to sit down. The room is the labour market and the chairs are the jobs. When the sitting commences, six people are going to be left standing (i.e., unemployed). Now suppose that the whole time there have been another five or 10 or maybe more people standing outside the room waiting for a chance to get in and take a seat. If these people start entering the room faster than chairs are being put out, the problem only gets worse.

This is essentially what happened in November. Even as the economy added a respectable number of jobs, there were still too few of them for all the workers entering the labour market. It’s still too soon to say whether last month’s labour market participation rebound is a one-off or a signal that participation is moving in a positive direction. But if job creation doesn’t keep up, we may see unemployment increase further.

That last month’s growth in labour force participation generated higher unemployment confirms what many labour commentators and critics have been saying throughout the post-pandemic recovery. Canada never achieved a full-employment economy, despite what employers might have been saying about a supposed “labour shortage.” The fact was that much unemployment remained, and continues to remain, hidden. As I wrote back in August, official unemployment was not giving us a true picture of the persistent slack in the labour market. Many workers were and are unemployed, under-utilized, and discouraged.

In a helpful dissection of the recent jobs data, economist Jim Stanford suggests that the slow fall in labour force participation through much of 2023 and 2024 was a result of the Bank of Canada’s tighter interest rate policy and its negative impact on investment and job creation. What’s more, even the relatively minor gains in participation seen in late-2021 and 2022 didn’t return the job market to what we would have expected if growth had matched the pre-pandemic trend. Stanford suggests that if participation was now as high as it was in 2019, official unemployment would clock in at 8.2 per cent, not the 6.8 per cent observed in November. And that would be the official number. There would still be additional hidden unemployment and labour force under-utilization. In other words, there are still a lot of workers out there sitting on the sidelines simply because the economy is not producing attractive jobs for them.

Prior decline in labour force participation was an indication that the Bank of Canada overshot with its aggressive series of interest rate hikes. Though we avoided the full-on recession some thought would result from the post-COVID monetary tightening, and technically achieved the much-celebrated “soft landing,” many workers nevertheless felt like they were living through a downturn. Squeezed by rising food and shelter costs in particular, workers didn’t enjoy the real wage gains one would expect from a supposedly tight labour market.

With the Bank of Canada finally loosening monetary policy and cutting interest rates, job creation may pick up going forward, but this is hardly guaranteed. An additional 50 basis point cut announced last week is further indication that the central bank is concerned about labour market cooling. Better late than never, I suppose.

The sensible thing to do is use the November data as an indication of just how many workers remain out of work through no fault of their own and commit to a robust plan for job growth. Depending on the market to solve the problem on its own is a fool’s errand. As always, we need a real commitment to full employment that uses the public sector to guarantee jobs to all workers who want them.

Of course, such a program is not on offer from the federal Liberals or Conservatives. It’s time for workers and the labour movement to force the issue.

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