The Canada Unemployment Rate started increasing in 2020 when the pandemic struck. Still, after the initial shock, the rate declined steadily in 2021 and reached 5.9% last December (2021), according to sources.
According to Indeed Canada, the number of people looking for jobs went up from 25% in September to 30% in October.
A high Unemployment rate can be a signal of a highly distressed economy, while a low unemployment rate can be a signal of an overheated economy.
An economy in an ideal situation should have a two percent as its unemployment rate. An employer doesn’t have to raise their wages to attract workers. They can use innovative ways to attract workers.
If an economy has a zero percent unemployment rate, then the economy is considered an overheated one.
The natural unemployment rate should be between 4.7% and 5.8%. This rate should be inclusive of frictional, structural, and surplus unemployment.
1. Possible Causes of Unemployment in Canada
1.1 Frictional employment –
This is unemployment caused by people’s time to move between jobs, e.g., graduates or people changing jobs.
There will always be frictional unemployment in an economy because the information isn’t perfect, and it takes time to find work.
Sometimes Frictional unemployment occurs due to a lack of job satisfaction.
1.2 Government policies –
The Canadian government offers freebies to the unemployed, like unemployment grants, food rations, and widow pensions.
This occurs when people remain unemployed rather than take the available jobs.
For example, if the benefits are generous, people may prefer to stay and receive these benefits rather than find work. These policies are usually considered suitable for the people who benefit from them.
However, due to these benefits, people lose interest in working hard and taking up jobs. Instead, they while away looking after themselves and their family.
Now, this is something well-known by the governments, and in a sense, it is a burden too. However, to stay in power, the parties continue to offer such policies to fear of losing votes.
Yet, in 2021, the current government decided to fix this issue by scraping the policy.
1.3 Natural Calamities –
Due to climate change, migration because of natural disasters will become a normal occurrence in the future. Canada is already facing this problem.
The Western Region of Canada faced a tough time due to drought, landslides, tornados, forest fires, and floods. Many have lost their homes, and Canadian troops and volunteers are now rescuing livelihood.
Since the Western Region is mostly an agricultural centre of Canada, there will be difficulty reinstating the farmlands back to their owners since the river has shifted its course.
There are many, who have no place to stay, and no food to eat; survival is what they are keeping at the forefront.
1.4 Lack of resources –
With the Natural disasters faced by Western Canada, there will be a crunch in the country’s resources.
Since the western region was the agricultural source of the country, food problems may arise.
The forced migration of people from that region can stress the resources of other Canadian regions providing food, shelter, and water aid.
2. Estimation of Canada’s Unemployment Rate
There are three approaches through which the trends unemployment rate is estimated:
- Philips curve usage – With the help of the Philips Curve for the conditioning information, this estimates TUR as an unobservable variable in the state-space model.
- Models as Variables – Tax or demographic variables, but are based on the models of variables thought to determine TUR.
- Filters – With the help of simple, augmented, and mechanical filters that will extract the time series trend.
Four criteria are to be met by all these approaches:
- the extent of explanation given by TUR movements
- the behaviour of revisions to estimated unemployment gaps
- information provided by unemployment gaps about future consumer price index and wage inflation
- the fit of unemployment gaps in the estimated Philips curve
Type of Data to be used:
Real-time data is to be used, as it is relevant when assessing TUR measures. Data is not revised significantly for the unemployment rate, and some data can be revised when estimating.
Assessing TUR measures with revised data can give a different viewpoint. Policymakers should use real-time data when making decisions.
3. The effect of Income Support Programs
Once the Income support ended, the Canadian unemployment rate fell.
In November, when Justin Trudeau’s government decided to end the support program, the unemployment rate declined rapidly.
Once the unemployed Canadians realized that social assistance would end, there was a rush to find jobs. The workers described the search for jobs as immediate, and these workers were previously unemployed.
According to some, the individual income-support programs could have been the cause for the fall in employment gains.
The employed Canadians have increased by 0.3 percentage points to 19,317,000 people. The unemployment rate is measured as the number of people looking for jobs as a percentage of the labour force.
Job openings since June 2021 were 22%, but in February 2020 and February 2019, it was the lowest.
Since June, full-time employment has increased and is now higher than pre-pandemic levels. Part-time employment has reduced significantly, while full-time employment has risen. Most of the growth was from the state of Ontario, Canada.
Men aged 25 to 40 years have increased in the full-time employment category. Employment for core-aged women has also trended upwards since June and has exceeded the pre-pandemic levels in December.
Their employment rate also changed last year for people aged 15 to 24 and above 55.
4. Full-time gains are a driver of Employment growth.
In December, men over 65 years of age achieved full employment. Part-time employment dropped to 88,000. In June, full-time employment went up but was +1.6% above the December 2018 peak.
The wages of part-time workers remained flat in comparison.
Meanwhile, for immigrant citizens in the last two years, in the core aged population, the employment rate for them has increased by by 7.8% percentage points.
The immigrant population has contributed to the professional, scientific, and technical service sector, wholesale and retail trade.
This has indicated that higher-skilled and lower-skilled employment plays an important role in including newcomers to the labour market.
For those immigrants who arrived on Canadian soil more than five years ago and Canadians, the unemployment rate has changed since those two years earlier.
Public Health restrictions have resulted in the work-from-home model. However, in 2021, the proportion of work-from-home workers remained stable until August.
But earlier that year, workers have been active for half the hours they were expected to give pre-pandemic.
5. Trends in the Employment divergence
In 2021, the employment level went back to pre-pandemic levels. Due to employment recovery, there have been notable improvements in the information, culture, and recreation industry.
These drastic changes were seen at the end of the summer and fall of 2021. Even though there has been a 103,000 increase in the food services and accommodation sector, it has not regained its pre-pandemic level.
The rate remained at 16.9%, below the pre-pandemic level in December 2021. Since September, there has been no growth.
Since summer, employers have been trying to fill the employment gaps and face challenges in this sector.
Employment in manufacturing has returned to its pre-COVID level by the end of 2020; net growth wasn’t much in the industry in 2021, with many subsectors affected by semiconductor shortages.
Gains cancelled out the losses in May 2021. According to the Survey of Employment, Payrolls and Hours (SEPH) data, payroll employment in beverage manufacturing was way above its pre-pandemic level in October 2021.
In contrast, printing and related support activities and motor vehicle parts manufacturing were lagging.
In December 2020, the number of people participating in agriculture decreased by 7.4% since the pre-pandemic level.
Employment continues to decline in 2021, falling to 19.5% below February 2020 level in December 2021.
In December, 37,000 fewer people worked in agriculture than 12 months earlier, as almost all losses were attributable to self-employment (not seasonally adjusted).
The agricultural business faced significant challenges in 2021, including drought in the early months of 2021, which adversely impacted the growing season in Western Canada (principal field crops production, November 2021).
5.1 Private sector contribution
The rate of engaging employees in the private sector and self-employment remains steady.
The number of people enrolled in the private sector has increased by 1.4%, higher than in February 2020. But the growth for self-employment has been lagging to its pre-pandemic levels by 8.5%.
5.2 Public Sector Contribution
Employment rose by 32,000 in December. The number of employees in the public sector was going above 7.9% compared to the pre-pandemic level.
This rise is due to public administration, social assistance, health care, and educational services industries.
5.3 The Employment gains from the goods-producing sector
In December, the goods-producing sector opened up to 4.6 million compared to the previous year.
The largest contributor to this industry was the construction boom. After the 12% increase in November, services sector job opportunities stayed low in December.
In the educational and other services industries, like lodging and food services, employment has increased by 17,000.
5.4 Average Hourly Rates
The year-on-year basis shows that there has been a rise in the average wage rate due to an increase in December 2021.
This is similar to the pace of wage growth from 2017 to 2019. In December 2020, average hourly wages increased by 5.5% on a year-over-year basis.
Part of the reason was the changes in the composition of employment that occurred earlier in the pandemic.
The method that takes the composition of employees by occupation and tenure constant at the 2019 average, the year-over-year wage growth was 3.0% in December 2020.
In the last few months, composition change of employment has had less effect on wage growth than earlier in the pandemic.
Year-over-year wage growth was the same for the third consecutive month(December 2021) when employees’ composition was constant, and no controls were applied.
5.5 Saturation of the labour market
Lapointe suggests that the December report points out that the economy might be close to full employment. Full employment occurs when the worker is willing to work at the current market rate.
Frictional unemployment takes place at full employment. Job vacancies are equal to the number of unemployed workers.
Frictional unemployment is when workers leave their jobs due to a lack of job satisfaction, transport issues, and social issues faced at the workplace.
Job Separation means employee terminating their working relationship with their company.
This can happen when an employee’s contract with a company ends, or both employer and employee agree to end the contract.
In November, the job separation rate had fallen to 2% since 1976.
The companies are trying their best by employing as many people as possible and holding onto their current employees to reach long-term unemployment.
6. The Labour Force Survey result
What has been ignored
6.1 British Columbia
The severe flooding in British Columbia in December 2021 has been at this level due to climate change. The landscape has changed, and the route of one main river has shifted.
Thousands have lost their livelihoods, and a major highway system has been damaged. The state is still in danger.
Farmers were adversely affected by the drought, forest fires, and floods. Their ports and towns have been cut off from society.
Many farm animals have been left behind, so vets have been deployed to give treatment.
The state is receiving social assistance from Canadian Troops and volunteers.
6.2 Ahead of Policies
The renewal of the monetary policy framework, where the inflation rate target range for raising bank interest rates will be one to three per cent.
However, the government plans to keep the labour market conditions at the forefront before making any decisions.
Markets are expecting the Bank of Canada to raise its interest rates. This could impact the cost for the company and may affect the wage rates.
But Statistics Canada has not considered this while making their labour force survey report.
Closing Thoughts
As Canada’s “income support programs” slowed, the unemployment rate took a massive turn. Over the coming years, the Nation’s economy will witness full employment. All thanks to Trudeau’s government decision.
And now, you have a better grasp of the issue and a better understanding of how the gap in average hourly wages grew, how self-employed workers increased, and public sector employees fell as employment fell for six months consecutive monthly decline in the services-producing sector. Private sector employees’ hiring rate, which is shown in comparable data. It also get effected by the self-employment remained flat
We hope you found this article on the Trend Unemployment Rate of Canada an interesting read.
Please feel free to share your views if you think we have missed out on anything. You can connect with us via the comment section. We would love to hear from you.
