Jobs recovery overstated, Bank of Canada study finds
The Bank of Canada says the country's job-creation record since the recession is likely a little less impressive than the fall in the unemployment rate would suggest.
The central bank says in a new research paper that the unemployment rate, although the most quoted measure of labour market health, has overestimated the jobs recovery in Canada, and particularly in the U.S.
The paper, by economists Konrad Zmitrowicz and Mikael Khan, estimates Canada lost 430,000 jobs in the recession, with unemployment rising from 5.9 per cent in May 2007 to a peak of 8.7 per cent in October 2009.
It has since recovered those lost jobs and created 600,000 more, but "an unusually large share of the unemployed have
been out of work for six months or more, and many workers who would like to work full time have been able to obtain only part-time employment."
Labour underutilized
The unemployment rate in December 2013 was around 7.2 per cent, but that figure does not accurately measure underutilization of labour in the Canadian economy, the authors say,
Khan and Zmitrowicz create a composite labour market indicator — LMI — that combines factors such as long-term unemployment, wage growth and average hours worked that attempts to paint a more accurate picture of what has occurred since the recession of 2008-09.
In the recovery period between 2010 and 2013, the bank says the unemployment rate fell 0.9 percentage points.
But the LMI fell only 0.5 percentage points during the period, suggesting the improvement in the labour market has not been as good as the drop in unemployment indicates.
Long-term unemployment, defined as being out of work for more than 27 weeks, has been a significant problem in the post-recession recovery, the report says.
"Most alarming, long-term unemployment can be self-perpetuating, since workers who face extended periods of unemployment, in particular, may find new employment increasingly difficult to obtain. Lower wages and loss of employment opportunities could be the result of the loss of skills or the stigma employers attach to workers who have been unemployed for a long time," the report says.
In Canada, the percentage of the labour force considered long-term unemployed doubled to 20 per cent in 2011, with some people dropping out of the labour force altogether.
Jobs recovery overstated, Bank of Canada study finds
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