High unemployment to persist in Canada: analysts
Published Wednesday, December 1, 2010 6:20PM EST
OTTAWA - Canadians may need to get used to persistent high levels of unemployment, even as thousands of jobs are being created every month.
The seeming disconnect has been a theme throughout much of the year in Statistics Canada reports on monthly unemployment and employment figures -- one staying flat, the other rising slightly.
Friday's data for November is widely expected to continue that trend, which set in after March and has seen the unemployment rate bobbing within a narrow band 0.1 percentage points above or below eight per cent.
The consensus estimate of economists is that 15,500 jobs were created in Canada in November, a much stronger performance than October's 3,000. However, the unemployment rate will remain moored at 7.9 per cent because the increase is only enough to keep up with new entrants into the job market.
Few analysts see the jobless rate moving down significantly in the foreseeable future. The forecasting firm IHS Global Insight predicts Canada's unemployment rate will average 7.7 per cent next year and will still be above seven per cent in 2013, long after the economy has returned to normal.
So reliable has the eight per cent reading been that this week Moody's Analytics economist Mark Hopkins wondered whether a fundamental shift had occurred in Canada, as many believe it has in the U.S., where a new normal for joblessness has been established.
The argument is that the jobless rate in both countries appears to have stalled at an much higher level than before the recent recession. Together with productivity gains, and a still high but uncounted number of workers waiting to get back into the jobs line, it may be difficult to move the unemployment rate much lower without igniting inflation.
Most Canadian economists don't buy the comparison between the two countries, or say that it is too early to declare a significantly higher level of "structural unemployment" in Canada. The argument works far better in the U.S. where the true rate of joblessness approaches 17 per cent if uncounted discouraged workers were included, they say.
Moreover, the say Canada's rate has not significantly moved for eight months not because of structural joblessness, but because the economy is weak. On Tuesday, Statistics Canada said gross domestic product had expanded only one per cent in the third quarter.
"We have a cyclical problem, so let's first deal with the cyclical problem first," said Brian Bethune, Global Insight's Canadian chief economist, meaning unemployment caused by low economic growth and weak foreign markets for Canadian goods, particularly in the United States.
"The unemployment we have is troublesome, but it reflects weakness on the demand side of the economy, not something structural," adds labour economist Jim Stanford of the Canadian Auto Workers union.
"Sure we've had a lot of displacement in manufacturing, but if the economy were performing well, we'd be creating jobs in other sectors, and that's not happening."
Or at least not happening in sufficient numbers. Although Canada has recouped the more than 400,000 jobs that vanished during the downturn, there are still more than 300,000 officially unemployed than was the case two years ago, representing new entrants who have been unable to find work.
TD Bank's Craig Alexander says there's some merit to the structural analysis in some sectors, particularly the manufacturing industry in Ontario.
He notes that the biggest hit on jobs since the 2008 crisis has been to manufacturing, warehousing and transportation -- three related industries -- and many of those jobs are not coming back, even when the economy is again at full throttle. Meanwhile, most of the job creation coming out of recession has been in services and the public sector.
"That means there's this pool of workers that has been displaced that are having real difficulty integrating into the labour market," he explained.
Some, such as older workers, may choose to move into early retirement, while others become discouraged.
Alexander believes that even if Canada's new normal level of unemployment is higher, and it probably is, it is also the case that the six per cent jobless rate in much of 2008 constituted labour scarcity, which was unhealthy for the economy.
The new full employment level is likely a rate of about seven per cent, agrees Douglas Porter of BMO Capital Markets, as opposed to six to 6.5 per cent before the recession.
According to his forecast, Canada's unemployment rate will reach that level by the end of 2012, when the Bank of Canada estimates the economy will be back at full capacity.
Economists do see the rate dropping further and possibly returning to a situation when employers again go begging for qualified workers, but that likely won't happen until a large clump of the baby-boom generation retires, leaving a vacuum that immigrants can't fully fill.