Canada’s unemployment rate jumped to 6.8% in November, the highest since 2017 excluding the pandemic. But there’s more to the labour market than that single number, and a broader range of indicators points to a labour market that is ailing more than many now suspect, says a new report by CIBC.
Unlike the Fed’s explicit dual mandate, the goal of full employment plays second fiddle to steering inflation to the 2% target. But a balanced labour market is judged to be a key underpinning of having inflation trend at the target rate, and Canadian job seekers are increasingly labouring under duress, said the report byAndrew Grantham, Senior Economist, CIBC Capital Markets and Avery Shenfeld, Chief Economist, CIBC Capital Markets.
Andrew Grantham
Avery Shenfeld
“Some brushed aside the latest jump in unemployment on the grounds that it was driven by an increase in labour market participation, rather than an outright employment decline. When those previously on the sidelines decide that they will look for work, they get added to the tally of the unemployed. But this wasn’t a case of participation soaring to new heights, but merely a rebound after a disconcerting decline, often a signpost that those who could work are giving up looking,” said the report.
Who stopped looking?
The report said Canada’s aging population will over time see an increasing number of residents hit retirement age and opt to leave the job market for that reason. But, thanks to immigration-fueled growth, the population hasn’t been aging recently.
“Indeed, after controlling for population shares, we should have seen little slippage in the participation rate since January 2023. Weakness in the youth job market has been a contributing factor, leading to those under 25 to stop searching. Service industries that reopened after the pandemic had earlier been seeing a severe shortage of workers that helped open opportunities for younger, less experienced job seekers. Much reduced job vacancies in those sectors are now reversing that trend. However, we’re also seeing some slippage in labour force participation of prime age workers, a potential signpost of weakening labour market health,” it said.
“In the last two years we have seen only a modest increase in permanent layoffs that is sending some into the ranks of the unemployed, contributing somewhat to the climb in the jobless rate. But an unusually high share of these laid off workers are transitioning to being out of the labour force entirely, and if they would have preferred to keep working, they are an additional element in labour market slack that isn’t being captured in the official unemployment rate.”
Photo by Edmond Dantès
Who’s unemployed?
The CIBC report said those who are in the official ranks of the unemployed are increasingly being found in a broader range of Canadians in terms of age and immigration status. The rise in joblessness is no longer just a story of newcomers to the country being out of luck, or of job challenges for students and other youth.
“Since the spring, the rise in the jobless rate versus where it stood two years prior has been driven by those over 25 who have been in Canada for five years or more. Sometimes, a lot of churn in the job market can elevate the unemployment rate, by leaving more people in a given month who are caught in a short gap between jobs, and thereby counted as unemployed. But in this case, a more concerning rise in longer term joblessness is clearly part of the story,” explained the report.
“The share of the workforce that has been looking for a job for 27 weeks or more recently hit levels not seen in the past decade, other than during the pandemic disruptions. The rise in long-term joblessness suggests that those people who don’t have the option of temporarily bowing out of the labour force are on average taking much longer to find work. Those who are employed also appear to be more aware of the softening in labour demand, and are sticking with their current positions to protect their seniority. The percentage of workers changing jobs is now well below levels that prevailed in the prior business cycle.”
Mario Toneguzzi
Mario Toneguzzi is Managing Editor of Canada’s Podcast. He has more than 40 years of experience as a daily newspaper writer, columnist, and editor. He was named in 2021 as one of the Top 10 Business Journalists in the World by PR News – the only Canadian to make the list. He was also named by RETHINK to its global list of Top Retail Experts 2024.
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