Budgeting, saving and investing for a brighter financial future

Comment: Canadian unemployment and the federal budget

By Jamal Hejazi, PhD,

Comments (1)

An economist looks at what the budget might mean for jobs, and calls for a partnership between Ottawa and the provinces to tackle unemployment.

Canadian unemployment and the federal budgetThe choices the Canadian federal government makes when spending what it calls its scarce resources are indicative of its view of our country’s ailments. In particular, the lean 2014-2015 budget released Feb. 11 addressed the Canadian economy’s biggest ailment of all: stubbornly high unemployment.

The new budget prescribes some modest measures for getting the economy back to full employment, including:

  • $40 million over two years for up to 3,000 internship positions in “high-demand fields”
  • More than $100 million in loans under the new Canada Apprentice Loan program
  • $11.8 million over two years and $3.3 million per year ongoing to launch enhanced job-matching services to ensure that Canadians are given the first chance at available jobs in their local area
  • $75 million for expanding the targeted initiative for underemployed older workers
  • $222 million a year through transfers to better meet the needs of people with disabilities and their employers, and an additional $15 million over three years to connect people with development disabilities with jobs through the Ready, Willing and Able Initiative

Workers are an integral resource and a key input for the country’s gross domestic product (GDP). As affirmed by the budget, when our workforce is fully employed, GDP growth is maximized. That is, when workers work, the economy thrives, and all Canadians benefit. So why has Canada had difficulties with unemployment? Two main issues have held us back: training Canadians for the jobs we need them to fill, and matching skilled workers with the employers who need their skills.

Job training promises a step in the right direction

Canada is a small, open, export-intensive economy. In some industries we have a comparative advantage over other countries. To maximize growth, we need to invest in training workers to participate in our industries with the greatest potential, such as natural resources. At the moment, it is difficult for individuals to figure out where they could be needed and to find the appropriate training they need for these opportunities. This results in structural unemployment – the jobs exist, individuals are available to fill them, but no effective process is in place to locate and train these individuals.

The Canada Apprentice Loan program and internship positions promised by the budget are a step in the right direction for solving structural unemployment. But as with all government spending, the effectiveness of these measures will depend on how well these initiatives are planned and administered.

The impact of skills mismatch

The current state of job training in Canada is fairly limited. Even for individuals who are trained, finding the right opportunities is a challenge in and of itself. In our current situation, there is a real disconnect between the skills that some employers need and those Canadian workers have to offer. A situation involving a mismatch of skills is far more sinister than a situation where an employee simply holds off working until the right opportunity presents itself (called frictional unemployment). The latter increases efficiency given there is a “proper match” in skills between worker and the worker’s new employer. The former is inefficient given that the worker faces a structural mismatch that results in long-term unemployment or only part-time work.

This skills mismatch has a sizable and harmful impact on the economy. Given the regional nature of the problem, a national partnership needs to exist between the provincial and federal governments. All too often, the federal government seeks a go-it-alone policy when in fact the provinces may have a better understanding of the nature and scope of the problem and be in a better position to fix it.

Proposed solutions

There are a number of solutions to structural unemployment that both the federal and provincial governments can implement. For example, workers can be re-trained for the sectors that are growing. Re-training workers is by no means an easy task, as shown by the previous attempts made after the North American Free Trade Agreement was signed. However, the following tactics should be considered:

  • Creating programs that help people relocate to areas with jobs
  • Giving industries incentives to build in areas where a surplus exists, such as Windsor, Ontario
  • Implementing further education tax credits or interest-free loans to encourage participation in our knowledge-intensive sectors

Given that the federal government has a near-surplus, now is the time to form a real partnership with the provinces and tackle the various causes of unemployment in Canada. Ultimately, individual Canadians are our most important resource, and how well we utilize their potential will dictate whether or not we thrive.

Jamal Hejazi, PhD, is Chief Economist at Gowling Lafleur Henderson LLP. He was assisted with this article by Ingrid De Freitas BSc, MA, JD (Student-at-Law)

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As I previous outlined, this federal position recognizing the structural deficiencies in unemployment and growth of our domestic economy is not fully honest in its causation. One of the main culprits abetting these structural deficiencies have been the inter provincial trade barriers that have impeded domestic trade growth and set labor movement barriers in place thru regulatory demands that force other provincial laborers/professionals to re-qualify to gain employment in any other chosen province. This scenario does not apply to any trade agreements, in fact these deals give supreme unimpeded access for foreign corporations over our own domestic companies. Even it seems, in the future for foreign governments possible rights to override various domestic government levels to achieve an unfair advantage in procurement contracts. These inter provincial trade barriers may also aid in undermining our sovereign power to use our constitutional standing against foreign trade tribunals that seek to financially penalize any domestic law enacted to preserve environmental and domestic standards necessary to maintain stability as a independent country adhering to the rule of law.

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