Election Masks Loss of Youth Employment

Election Conceals Deteriorating Labour Market

The period covered by October’s Labour Force Survey included election day. Temporary hiring for the election increased public-sector employment by slightly more than private-sector employment declined.

In particular, jobs disappeared in every goods-producing industry: manufacturing, construction, utilities, natural resources and agriculture. Since 2002, manufacturing employment fell by 350,000 largely because supply-side factors – rising energy prices and a rising Canadian dollar – significantly increased the cost of manufacturing in Canada.

In October, energy costs and the exchange rate moderated significantly. However, they moderated only because of a global economic downturn that reduced demand not only for manufactured goods, but also for products from every other industry. Therefore, a supply-side crisis concentrated in manufacturing (and tradable services) has been replaced by a demand-side crisis afflicting the entire economy.

Youth Bear Brunt of Deterioration

Among workers aged 15 to 24, employment declined by 34,000 and unemployment rose by 36,000. The youth unemployment rate jumped from 10.8% to 12.0%, pushing the overall unemployment rate from 6.1% to 6.2%. Unfortunately, young workers with shorter careers are less likely to qualify for Employment Insurance benefits.

Policy Responses

After years of deficit-phobia, the consensus among Canadian economists has quickly become that governments should be willing to run deficits in order to stimulate the economy. Certainly, cutting public expenditures to avoid deficits would be the worst possible response to a sagging economy. But more than temporary fiscal stimulus is needed.

Now is the time for governments to undertake longer-term capital projects that will be required anyway to replace crumbling infrastructure and build a society that emits less carbon. Whereas the credit crisis has sharply limited private borrowing, it has reduced the cost of public borrowing as the Bank of Canada cuts interest rates and lenders flock to safe government bonds. Canadian governments should undertake needed infrastructure spending not only to replace private credit as a source of economic stimulus, but also to take advantage of low public borrowing costs.

UPDATE (Nov. 7): The US Bureau of Labour Statistics also released its monthly job numbers this morning. What strikes me is that the American unemployment rate now exceeds the Canadian unemployment rate.

October 2008 Unemployment Rates

 

Perhaps the C. D. Howe Institute will calm down about our allegedly generous Employment Insurance system keeping Canadians on the dole and out of the workforce. The fact is that unemployment is rising in both countries and both governments should be enhancing supports for the jobless.