Our unseen job problem

Statistics Canada’s latest jobs report, released on Friday, paints a picture of an economy struggling to adapt to the collapse in commodity prices. Fully 2,300 jobs were lost, but the headline-grabbing number was the 7.3 per cent unemployment rate — the highest since March 2013. The sobering labour market performance will almost certainly fuel demands for the federal government to include boosts for the economy in next week’s budget. But to assess how the government can best provide support, one needs to look beyond the unemployment rate, which only tells part of the story.

The unemployment rate comprises both a numerator and a denominator. Without getting too deep into the weeds, the numerator tells us how many people without a job were looking for work while the denominator tells us the total of employed and unemployed people belonging to the labour force. Missing from this are discouraged workers without a job that have given up looking for work. Then there are those with part- time positions who want full- time work. Statistics Canada does have a broader metric of unemployment that captures these dimensions, and by this definition the unemployment rate in February was not 7.3 per cent but above 10 per cent.

However, the February rise in unemployment also shows one of the challenges with interpreting the monthly job numbers. There was a small loss of net jobs in February, but 2,300 positions are marginal relative to the 20 million people in the labour force, making employment effectively flat for the month. A key driver contributing to the increase in the unemployment rate was the fact that 17,800 more people were looking for work. This is viewed as a positive, since it means people were hopeful about finding gainful employment.

Given the various limitations in interpreting the monthly labour statistics, do we have a better way of assessing how the labour market is doing? The answer is yes, since the Bank of Canada produces a comprehensive measure called the labour market indicator, which incorporates unemployment- rate data with other information important to Canadians, includ- ing wage growth, average hours worked, labour-force participation rates, flows into and out of unemployment, long- term unemployment, and underutilization of labour. It uses a statistical technique to turn all this data into a single index number that we can compare to the unemployment rate, at a quarterly frequency.

The commonly held belief is that the Canadian labour market recovered nicely after the Great Recession and has only recently struggled due to the nosedive in oil prices. Much of this interpretation is predi- cated on an analysis of the unemployment rate, and a different story emerges when we look at the Bank of Canada’s more comprehensive measure. The unemployment rate, between the beginning of 2012 and the end of 2015, fell 0.5 percentage points. The Bank of Canada’s labour market indicator, on the other hand, fell by only 0.1 percentage points during this same time period and was mostly flat. The implication is that the traditional view overestimated the size of the post-recession recov- ery in Canada’s labour market, which provides a different backdrop for assessing the early part of 2016.

This matters for how governments react to the current situation. Given the importance in the Bank of Canada’s measure to things such as wage growth, hours worked and full- time work, it’s not just the quantity of jobs that matter but the types of jobs. This suggests that, to improve labour-market conditions, policy-makers should not fixate solely on fiscal actions to boost the number of jobs but also on maximizing the quality of jobs Canadians receive. Canada needs to improve its skills training for workers as globalization forces a structural change to the types of jobs available domestically. In addition, it is vital to match skills needed by businesses with those held by those with post- secondary degrees. This means more we want more young people training in science, technology, engineering, and math.

As always seems to be the case in economics, the devil is in the details. This remains true of interpreting the labour market and generating appropriate policy responses.

TRADITIONAL (EMPLOYMENT) VIEW OVERESTIMATED … THE POST-RECESSION RECOVERY.