Labour stabilization in an accelerating economy

To quote former P.E.I. premier Wade MacLauchlan, our economy is “on a tear”.

In fact, the economic engine has been on a tear for more than a decade. We reluctantly endured a hard stop when most economic activity was artificially suspended for several quarters. But today, the tear has caused a rip through an engine of our growth, the labour pool.

Our Island’s recovery is of little surprise. We can observe recovery patterns elsewhere, for example, the US, who leapfrogged Canada in vaccination and reopening. As our boarders open, a supressed energy is being predictably unleashed as businesses reopen, travel resumes and hiring occurs.

All stock indices are achieving record highs as companies benefit from reopening, through our local lag we have the benefit to anticipate what will occur next. The economy wants to run, but access to labour has become a bit to our pace.

Regionally, the pandemic did not hit our economy as hard. Between February and April 2020, 171,000 (four per cent) of jobs were lost in Atlantic Canada. Nationally, 7.3 per cent disappeared. By July 2020, 61 per cent of the jobs lost in Atlantic Canada had recovered compared to a 55 per cent recovery nationally, according to Statistics Canada.

P.E.I. fared even better than sister provinces, registering the least amount of economic loss according to the Atlantic Provinces Economic Council. Not surprisingly, the hardest hit industry was tourism, down 60 per cent year over year from 2019 to 2020, with restaurants also adapting but down 60 per cent. On P.E.I., tourism accounts for seven per cent of employment and four per cent of our Gross Domestic Product.

By May of this year, tourism was attempting a recovery, but nationally tourism employment was still down 26 per cent from pre-pandemic levels. In P.E.I., tourism employment had increased 13 per cent.

Coupled with an unplanned pandemic, structural changes to our labour force continue. Our work force continues to age, and large parts of the labour force remain displaced by policies. As of June 20, 16,910 Islanders remained on Employment Insurance (EI). The largest impacted age groups were 25-34 and 5564, important contributors to our economy.

In contrast, employers continue to struggle to find the necessary labour through a recovering economy. Supporting this disconnect, the provincial government increased its focus on foreign labour immigration with 89 per cent of all immigration directed to labour. Retention remaining the paradox of this equation.

Economic growth paired with labour constraints is not unique to P.E.I. This remains a challenge throughout North America. Monetary policy architects are sensitive to this divergence, where some companies are making unprecedented profits while high-contact employment is not recovering. Until employment participation is universal, the economic fuel of low interest rates will remain, in hope of stimulating greater labour market engagement.

Despite the demand for labour, wages are falling against inflation. Energy, housing and transportation, key components of the consumer price index, are rising faster than wages. In P.E.I., April weekly earnings decreased 3.5 per cent compared to the same period one year earlier. Prices rise, as earnings stagnate. Canada recorded 3.6 per cent inflation in May as P.E.I. achieved a whopping six per cent inflation rate.

The last element of a uniform and balanced recovery will be increased employment and wage growth. Many feel we are not near this phase of the cycle yet, for our seasonal Island economy the test will be comparing year over year engagement through our fall/winter. Only then can we test the validity of recovery.