Posted: Tuesday, 8 April 2008

The Hidden Jobs Crisis

Superficially, the Canadian economy and labour market are doing well. Economic growth is running above 3% at an annual rate, despite the US slowdown. We have a low unemployment rate of just over 6% (6.1% in May) and a near all-time high employment rate of 63.4% ( This is the proportion of the working-age population with jobs.) The rate of new job creation continues to have been quite high in 2007 until recently, matching the demand for jobs coming from the entry of echo baby boomers into the workforce, high rates of immigration, and a desire for later retirement on the part of some older workers.

The Bank of Canada and many economists believe that the job market is very tight and that our economy is operating “above capacity,” pushing inflation above the target rate of 2%. The Consumer Price Index was up 2.2% year-over-year in April and the core rate, which strips out volatile items like food and energy, is running at 2.5%. The Bank of Canada said on May 29th that there is “excess demand” in the economy and that they will very likely raise interest rates in the near future. While the concept of operating “above capacity” takes into account more than the state of job market, continuing low unemployment and strong employment growth are driving fears of higher inflation.

Yet, as the Bank of Canada does recognize, wages are quite flat. And, inflation is a decidedly regional issue. In April, only Alberta had an inflation rate significantly above 2% (coming in at a very high 5.5%), and inflation is well below 2% in Ontario (1.8%) and Quebec (1.4%.) High inflation in Alberta is driven above all by soaring home prices, with the owned-accommodation component up 17.7% in the past year.

From the perspective of working people, the real issue is not inflation but why apparently low unemployment and an apparently tight job market are not benefitting them. It is not that long ago that the Bank of Canada, the International Monetary Fund and the OECD all thought that an unemployment rate much below 8% would spark a sharp increase in real wages. But this is simply not happening.

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