The Canadian labour market: better than most, better than it has been, but not better than it could be

The labour market has fared better in Canada than in many other rich countries, it has fared better than it has in past recessions, but it has not fared as well as it could.

This is the major message from a recently released report by the Parliamentary Budget Office, which offers a valuable description of the Canadian jobs market because it puts developments in context: comparing them to underlying trends, comparing them to previous recessions, and comparing them to developments in other countries.

The report finds that despite the recovery “most labour market indicators remain weaker than their estimated trend levels.” Overall output is still considerably below full capacity and as a result so is total labour supply, employment, and hours. The unemployment rate remains higher than it would be if the economy was at its potential.

The analysis explains that we should not be judging the recovery relative to the state of things just before the onset of the recession in mid 2008, but rather relative to the underlying potential of the economy.

This is pretty clear with respect to the unemployment rate, which remains about one percentage point above its pre-recession level. But at the onset of the recession it was about one percentage point below its trend level—which the Parliamentary Budget Office estimates to be 7%—and is now only 0.4 percentage points above.

The analysis also finds “that in the four years following the most recent global recession, Canada’s labour market has generally fared better than in the downturns of the 1980s and 1990s.” This might be cold comfort for some since both of these recessions were particularly severe, more severe than other business cycle downturns during the post-war era, and more severe than elsewhere.

That said, the great recession the world economy has gone through since 2008 can rightly be called “great”, but perhaps less so in Canada, which fared better than other G7 and OECD countries particularly the Euro Zone and the United States. The report implicitly suggests  that the steady growth of employment in the public sector played a role in buffering the labour market and overall macro-economic performance.

That said, the authors, Randall Bartlett and Stephen Tapp, do not venture into explanations. They do, however, point out that the burden of the recession has not been borne equally.

The young in particular have been hurt disproportionately, and perhaps relatedly there has been little growth in wages for the lower paid. Median hourly wages corrected for inflation have fallen since 2010, and at about $16.50 per hour remain no higher than they were in 2009. Yet, they have increased for those in the upper end of the wage distribution.

Without an assessment of causes, there is little to be said about prescriptions with the exception that government reporting could be clearer: the Parliamentary Budget Office “believes that government reporting on labour market developments could be improved if the Government of Canada reported similar indicators of labour market performance in their major economic documents…”

Alas, a more thorough analysis of the underlying drivers of the Canadian recovery is still needed before we can judge why the economy remains below potential and the scope for public policy.

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