MNI INTERVIEW: Canada May Be Nearer Job Potential Than Thought

Canada may be as few as 110,000 jobs away from where employment could have ended up absent the pandemic, a top government labor-market statistician told MNI, providing an estimate less than half that of some investors.

Assuming employment rates rebound and multiplying that by population growth since the pandemic yields a shortfall of 272,000 jobs relative to pre-Covid economic trends, Statistics Canada senior labor market analyst Andrew Fields said. But while this figure is very close to the roughly 270,000 jobs gap calculated by economists at National Bank Financial and Bank of Montreal, almost all population growth has been in older age brackets, he noted in an interview.

Factoring in the Baby Boomers' advancement toward retirement and the lower employment rates of older workers narrows the jobs gap to 110,000, he said, speaking this week, after StatsCan reported Friday that the 3 million jobs lost in the pandemic have been restored.

An immigration freeze during the pandemic has also capped labor supply growth, Fields added, noting that employment could be 286,000 higher had new residents continued to arrive at the same pace. His figure of 110,000 also assumes that the hiring boom that reduced unemployment to record lows just before the pandemic would not have continued, otherwise the jobs gap could be over 500,000, he said.

FUN PUZZLE

"It's a fun puzzle. Let me tell you this, there's no one answer-- you've got to play with some assumptions and take into consideration some of these underlying population dynamics," Fields said.

The debate is critical to Prime Minister Justin Trudeau who has pegged the end of record deficit spending on wage subsidies and household relief checks to restoring a normal job market—the programs are due to expire this month but are under review for an extension. The Bank of Canada has also added almost half a trillion dollars of assets to its balance sheet and promised to hold a record low 0.25% policy interest rate until the second half of next year, arguing the economy won't heal without an inclusive job recovery.

STICKY LONG-RUN UNEMPLOYMENT

Fields and his colleagues did the analysis around the time of the monthly job report, which showed a gain of 157,100 positions in September. That put employment back where it was before the pandemic struck, a cumulative rebound of 3 million jobs in a paid workforce of 19.1 million.

The Labour Force Survey showed other mixed signs of restoring potential, including the return of a normal participation rate, while the employment rate remained 0.9pp below its pre-pandemic level. The economy's re-opening in recent months raises other uncertainties around elevated job vacancies and long-run unemployment, similar to findings in the U.S., Fields said.

"There's a lot of questions about why they're being stuck in that unemployment, because initially you'd think they were not typical long-term unemployed," he said. "That doesn't seem to be the case, they seem to be sort of stuck in that category," he said.