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Falling unemployment rates are masking a protracted economic recovery that will be dominated by discouraged low-wage workers who will find it hard to re-enter the labor market, Canadian government adviser Mikal Skuterud told MNI.
Hours worked will be a better measure of the economic recovery because they are more closely tied to total output, said Skuterud, part of an expert panel advising Statistics Canada on its labor market figures and a University of Waterloo economics professor. Total hours worked in Canada remain 4.5% below where they were before the pandemic.
Tracking "inertia" in the the employment rate -- the percentage of the working-aged population holding a job -- will be another truer guide to job-market weakness, he said. Canada's employment rate plunged from 74.4% in February 2020 to a record low 62.7% in April. After a rebound to 72.1% in November, it slipped the last two months back to 71%.
The employment rate will take a long time to recover and may never get back to where it was, he suggested. Extended layoffs will pressure some workers into leaving the labor market for good, older workers may move to early retirement, youth will miss out on vital early-career experience, and some households will decide they can live with one paycheck instead of two, he said.
"The employment rate is going to lag for a long time, getting that back is not going to be easy," Skuterud said.
The unemployment rate "has recovered to some extent, it will continue to recover, but I'm not sure that's the thing that really matters," he said. "We need to get away from our obsession with the unemployment rate, it's not meaningful."
STARKER K-SHAPED RECOVERY
Skuterud's view lines up with central bankers like Tiff Macklem arguing job market slack will be a dominant concern through the pandemic, one reason they need to press ahead with near-zero interest rates and asset purchases. Global bond investors have driven up yields on the idea inflation will surge as vaccine rollouts unleash pent-up demand and open up more companies for regular production, perhaps even restoring full employment sooner than policy makers expect.
There's more evidence now of a "K-shaped" economic downturn than in the early months of the pandemic, Skuterud said, pointing to more extensive data Statistics Canada is now publishing on different racial groups. Some of the sky-high figures of Canadians taking relief checks and record numbers of people now in long-term unemployment add to the picture of a drawn-out recovery, he said.
"There is going to be a chunk of the labor force… that's going to get left behind, and that's what I worry about," he said. "It is these long-term jobless folks that I'm worried will be left behind."
Political parties focusing proposals on things like universal child care and more sick leave pay appear opportunistic, he said. Instead, the most effective solutions are providing better information to make job hunting easier, and an increased focus on training and retraining, he said. Canada's government says that beyond looking at child care and other social programs, it will roll out up to another CAD100 billion of deficits after the pandemic to bring back the job market, which business groups have said will come too late to be effective.
DROPOUTS MASK LABOR WEAKNESS
Statistics Canada has been "very responsive" to the panel's feedback in re-working monthly job reports to capture some of the extreme movements during the pandemic, he said. The Labour Force Survey has become more difficult to compile because health restrictions have ruled out many in-person interviews, he said.
The jobless and the employment rates both suggest a long recovery based on the last deep recession. Each measure took from 2009 until the end of 2017 return to where they were before the global financial crisis. Unemployment hit a modern-day record of 13.7% in May and fell steadily to 8.6% in November, before climbing back to 9.4% in January. It was a record low 5.4% before the pandemic.
The jobless rate will overstate improvements by leaving out discouraged workers who quit the labor force, and will show increased uncertainty at a time when questions around actively looking for work are in flux because of Covid-19 furloughs, Skuterud said.