I referenced a statistic last week published in a report by Scotiabank economist Erika Cain. Despite a sizeable drop in the Canadian unemployment rate since 2009 – from 8.3% then to 7.1% now — the percentage of Canadians who are employed is still considerably lower that it was before the recession. “Canada’s employment-to-population ratio at 61.8% in 2012 remains well below the pre-recession peak of 63.5% set in 2008,” wrote Cain. “Canada’s employment-generating capacity has been insufficient in providing enough jobs for a growing population and suggests that the jobless rate has improved in large part due to weaker labour force participation.”
I think Cain’s observation is an important one, so I called her on Friday to learn more. Statistics Canada reports that in 2008, when the employment-to-population ratio was 63.5%, the participation rate was 67.7%. That translated into an unemployment rate of 6.1%.
A year later, the employment-to-population ratio fell to 61.6%, the participation rate dropped to 67.1% and the unemployment rate jumped to 8.3%.
Even as the unemployment rate fell each subsequent year: to 8% in 2010, 7.4% in 2011 and 7.2% in 2012, the participation rate also fell. That number came in at 67% in 2010, 66.8% in 2011 and 66.7% in 2012.
“Canada has completely recovered all the [job] losses that were incurred during the recession and then some,” said Cain. “The unemployment rate has definitely come down due to employment growth, but also because there’s been a drop-out in the labour force.”
You can see this in the employment-to-population ratio, which hit a post-recession low of 61.6% in 2009 and 2010, and then crept up to 61.8% in 2011. It remained there last year.
“Obviously we are not creating enough jobs to keep pace with population growth,” Cain told me. “Even though employment growth in Canada has been relatively robust, relative to other industrialized nations it is still incomplete.”
That supports what we heard from TD Economics’ Diana Petramala last year. “The labour force isn’t growing as fast as it has in the past,” she told me. Petramala said Canada’s “poor productivity performance” is one of the reasons why. The Canadian economy’s productivity — our workers’ ability to produce economic value — has been falling in comparison to the U.S. economy for three decades. According to Deloitte Canada, our output per worker is about 86% of the U.S.’s.
It’s tempting to dismiss the weak participation rate as a short-term phenomenon. Young people are staying in school longer, and some Canadians have grown discouraged by a long, frustrating job hunt. Both factors will probably turn around as the economy strengthens.
That might not be in the near future though. If Canada is unable to improve its economic productivity, there will be more tough years ahead for job hunters.
Meanwhile, Cain said Scotiabank predicts a modest improvement in the employment-to-population ratio this year. Job growth will beat employment growth by 10 or 20 basis points, according to the bank. Economic growth in Canada is expected to come in at 1.7% this year.
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