Recession Watch Bulletin

Issue 2 ― Summer 2009



This is the second in a series of analytical reports from the Social and Economic Policy Department of the Canadian Labour Congress reporting on the impacts of the global economic crisis on the jobs, wages, and economic security of working Canadians.



This report focuses on rising unemployment and shows that―when the rise of “hidden” unemployment is taken into account―we have already hit double digit levels.


Rising unemployment is entirely driven by major job losses which have affected almost every community in Canada. Since October 2008, we have lost more than 400,000 full-time jobs, and the great majority of these are permanent layoffs.


Recessions lead not just to higher unemployment, but also to a shift to more insecure and lower paid jobs. It is early days yet, but there has been a significant shift to involuntary part-time work.


Our Employment Insurance (EI) system continues to leave the majority of unemployed workers out in the cold, especially in those areas which began the recession with relatively low unemployment rates.




Unemployment:



The economy fell into a recession in the last quarter of 2008. The impacts on the job market began to be felt almost at once, particularly from October 2008.


The national unemployment rate bottomed out at 5.8% in June 2008, and rose gradually to 6.3% in October 2008. Since that time, it has jumped sharply to 8.4% in May 2009, the last month for which we had data at the time of writing. Many economists now expect the unemployment rate will rise above 10% by late 2009 or early 2010. Between October 2008 and May 2009:













Statistics Canada publishes supplementary unemployment rates which take into account the fact that the headline national unemployment rate does not include:




The broadest measure of unemployment (R8), which includes all of these groups, rose from 8.9% in May 2008 to 11.7% in May 2009. (These data are not seasonally adjusted.)



The Labour Force Survey shows that in May 2009, there were 1,290,000 persons who were either unemployed or not working who had left their previous job because of a job loss. Of that number, just 112,000 were on a temporary layoff. The remainder had been permanently laid off.



Table 2 shows that just 48% of unemployed workers were collecting regular EI benefits in April 2009—and that just 37% were collecting benefits in Ontario and just 38% in Alberta. The so-called Beneficiaries/Unemployed or B/U ratio has been rising a little since January as more workers in previously secure jobs are laid off ... but less than half of all unemployed workers are currently collecting benefits. Some will have originally qualified and then exhausted a claim, but many part-time, temporary, and contract workers (especially women and young workers) do not have enough hours of work to qualify in the first place. In March, 60% of unemployed men, but just 48% of unemployed women, were collecting benefits.


EI regions which began the recession with low unemployment rates have low rates of receipt of benefits since qualifying hours can be as high as 700 hours, and benefits in low unemployment regions can be exhausted in as few as 19 weeks. Appendix Table 2 shows EI beneficiaries as a percentage of unemployed workers by region. The lows are below one in three in Regina and Saskatoon. Regular EI weekly benefits averaged just $348 in December, well below the maximum of $447. The maximum in the last recession was $600 per week.



As noted, the part-time rate (the proportion of workers working part-time) has risen. While we do not have seasonally adjusted data for this indicator, there are clear signs that some people who want full-time jobs are being pushed into part-time jobs. Compared to one year ago (May 2009 compared to May 2008), the proportion of all part-timers working part-time hours due to business conditions (as opposed to expressing a preference for part-time work) rose from 23.3% to 27.7% or more than one in four. For women—who make up the great majority of part-timers—the proportion of involuntary part-timers rose from 22.9% to 26.0%.


As shown in Table 1, despite major overall job losses, the number of self-employed workers has increased a bit, slightly increasing the overall proportion of self-employed. Within the overall category of self-employment, there has also been a shift into the most insecure and poorly paid form of self-employment—those who are unincorporated and have no employees.



There are some troubling signs that the loss of well paid jobs due to rising unemployment and wage reductions in existing jobs, such as those being imposed on unionized auto workers, are reducing earnings.


Between March 2008 and March 2009, average weekly earnings (including overtime) rose by just 2.4%, well below increases in 2008. Average weekly earnings fell by 2.8% in the hard-hit manufacturing sector. Wage increases for both union and non-union workers have slowed significantly since 2008. Wage cuts on top of job losses would, most economists agree, worsen the economic downturn.



Many people wrongly believe that public sector jobs are recession-proof. While the private sector has shrunk more than the public sector in terms of jobs, 44,000 public sector jobs or 1.3% of the total public sector payroll were lost between October 2008 and May 2009, including 19,500 lost direct government jobs in Public Administration and 24,000 (mainly but not exclusively) public sector jobs in educational services. (See Table 3) It is clearly not just private sector employers who are cutting jobs in this recession, and government job cuts are making the downturn worse. Two provinces—British Columbia and New Brunswick—have imposed public sector wage freezes.



As shown in Table 3, the biggest job losses by industry between October 2008 and May 2009 were in manufacturing and construction. Manufacturing employment fell by another 186,000 jobs, bringing the total job loss since 2002 to almost 500,000. Construction employment has fallen by 186,000 or 9.4% since October, and employment in the forest, fishing, mining, and oil and gas industries combined is down 7% over this short period.




Table 4 summarizes key labour market data for the provinces for October 2008 to May 2009. Almost nowhere in Canada has been unaffected by the jobs crisis.



Appendix Table 1 shows the rise in the unemployment rate for economic regions across Canada (based on a three-month moving average). Only one region escaped a rise in unemployment.

Feature Article:

How many unemployed Canadians will exhaust their EI benefits?


There was a problem before the recession in terms of EI claimants exhausting their benefits before finding a new job, and it will soon get much worse.


In 2006-07, before the recession, the national unemployment rate averaged just over 6%. Nonetheless, there were over 1.3 million new regular EI claims filed over the year, reflecting the fact that many Canadian workers experience periodic spells of unemployment through no fault of their own, even in relatively good times. To qualify for EI, a worker must have been involuntarily laid off from a previous job, be actively seeking a new job, and have met the hours of work entrance requirement in the region in which she or he lives.


The average regular EI claimant qualified for 31 weeks of benefits in 2006-07, the most recent year for which HRSDC (Human Resources and Skills Development Canada) provides data. However, the average claim was for just 18.7 weeks. That is because most unemployed workers managed to find a new job before exhausting a claim.


Nonetheless, even before the recession, more than one in four (27.9%) claimants exhausted their benefits (29.9% of women and 26.5% of men). Based on a total of 1.3 million new claims in 2006-07, about 350,000 claims were exhausted over the year. More than one in three (34.3%) older workers on EI exhausted their benefits. (Calculated from data in HRSDC, EI Monitoring and Assessment Report, 2008: 74-75.)

Neither Statistics Canada nor HRSDC release current data on the average period of eligibility for EI benefits for new claimants, or on how many claimants exhaust their benefits in any given month. This lack of information makes it difficult to assess how well the system is coping with the economic crisis.


Currently, claimants are eligible for between 19 weeks and 50 weeks of benefits depending upon how many hours of work they put in in the 52-week qualifying period and the regional rate of unemployment. This range of eligibility periods includes the temporary five weeks of benefits added to the system in all regions in the last Budget.


In an “average” region with an unemployment rate of 8%—the same as the average national rate—eligibility ranges from 23 to 47 weeks depending upon the number of hours worked in the previous year, with more than 1,820 hours or essentially a history of working in a full-time, permanent job being required to get the maximum 47 weeks of benefits. The current 50-week maximum in all of Canada only applies in regions with an unemployment rate above 12%.


One can estimate that a new EI claimant today will, on average, qualify for about 38 weeks of benefits. That is the average of 31 weeks for 2006-07, plus the extra five weeks added in the last Budget, plus the extra two weeks generated on average by a two percentage point rise in the national unemployment rate. (Nationally, the unemployment rate has jumped from 6% to 8%, though the actual increase varies between regions. The unemployment rate has risen fastest in Ontario, British Columbia, and Alberta.)


The key question that needs to be asked is: How many claimants are likely to exhaust their benefits in the weeks and months ahead?


In February 2009, the number of new EI claims was up 53% from one year earlier. If this trend continues, we can expect the total number of new claims in 2009 to hit about 1.7 million. If the exhaustion rate were to remain the same as in 2006-07, we could eventually see some 475,000 exhausted claims in late 2009 and into 2010.


It is open to question if the exhaustion rate will remain the same as before the recession. On the one hand, as noted, a higher unemployment rate automatically triggers longer benefit eligibility periods, and five weeks have been temporarily added for two years. On the other hand, it will be much harder than in 2006-07 for those on claim to find a new job before their eligibility period comes to an end.


Before the recession, in 2008, the average duration of a spell of unemployment had fallen to a historic low of just 16.3 weeks for workers aged 25 and over (17.5 weeks for men and 14.8 weeks for women), but it was significantly longer at 19.7 weeks for workers aged 55 and over. (Data are from the Labour Force Survey Historical Review with a top code of 99 weeks of unemployment.)


Previous recessions saw a major increase in the average duration of a spell of unemployment. During the last recession, the average duration of unemployment among adults aged 25 and over rose from a low of 19.0 weeks in 1990, to 21.4 weeks in 1991, to 25.3 weeks in 1992, to a high of 28.1 weeks in 1993, and 28.8 weeks in 1994, before slowly falling thereafter. Typically, unemployment duration rises slowly but surely in the initial stages of a recession, and then peaks well after an economic recovery has begun. Part of the reason is that new hiring lags a recovery in production. Also, the longer a worker is unemployed, the harder it becomes for she or he to find a job in a changing labour market which demands current skills.


Because of the manufacturing jobs crisis which preceded the recession, there are already a significant number of longer term unemployed workers at risk of losing benefits in even the near future. As of April 2009, there were 210,500 unemployed workers who had been unemployed for 27 weeks or more (117,600 men, and 92,900 women). (Not seasonally adjusted data from Statistics Canada CANSIM Table 282-0047.) It is impossible to say how many of these workers are current EI claimants, but the great majority (90%) are aged 25 and over, and thus much more likely to be eligible for EI than young workers. As noted above, one in seven of all unemployed workers have now been out of work for more than six months.


There are a significant number of unemployed workers at risk of losing benefits in the short-term, and their numbers are likely to grow very rapidly in the months ahead if eligibility is not further extended.



AJ:jc:cope 225 • June 30, 2009

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