Do Minimum Wage Increases Kill Jobs? Look at the Evidence and Judge for Yourself

When it comes to raising minimum wages, the argument of those opposed to the raises is most often that higher minimum wages kill jobs. The argument is straight-forward and makes sense: A higher minimum wage increases the cost of doing business for those employers who hire in minimum wage positions, pushing some of them out of business. A higher minimum wage also makes it less attractive for businesses to hire in minimum wage positions. If this is true, this should  mean that higher minimum wages  result in higher unemployment rate,  everything else being equal.

Statistics Canada just issued a study today (July 16, 2014)  titled “ The ups and downs of minimum wage, 1975  to  2013” where they have collected the historic minimum wage rates, which they have  adjusted for inflation. The data in this study (along with   Statistics Canada’s  unemployment rate statistics since 1976)  makes it possible to  compare unemployment trends  and minimum wage trends over the past 3 decades. So we did just that and produced the chart below overlaying the two data sets.

So does higher minimum wage kill jobs? Does a  lower minimum wage  encourage employers to create more jobs?  Look at the evidence and decide for yourself.

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Employment Remained Steady in October but Job Quality May Have Declined

Written by Strac Ivanov, MBA, President and Co-Founder of Vicinity Jobs Inc

Economically and politically, October 2013 was a tough month, mired in uncertainty. The US government was shut down for more than half of it, as media was discussing the potential consequences of something most considered unimaginable until only a couple of months ago: A default by the US government. All this uncertainty seemed guaranteed to take its toll on the job market in both Canada and the US: Businesses tend to delay hiring when they are uncertain about where the economy is going.

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Is Canada’s Job Market Stuck in Neutral?

At first glance, StatCan’s Labour Market survey from August paints a pretty rosy picture: Canada’s economy created 59,000 new jobs, and unemployment dropped 0.1 percentage point to 7.1%. But a more detailed look reveals some less encouraging details.

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Canada’s Unemployment Unchanged in April As Hiring Demand Recovers

In the late months of 2012, I started warning that the job market growth reported in Statistics Canada’s labour market surveys may be unsustainable. Our own Vicinity Jobs hiring demand research, which analyzes online job postings, showed that the numbers of new jobs advertised had fallen to levels we had not seen in years. I speculated that employers may be holding back layoffs rather than creating new jobs.

Then something interesting happened: Canada’s economy lost jobs and unemployment increased in March as I had expected – but at the same time, our own reports showed that hiring demand was starting to pick up. So I suggested that if hiring demand holds up, this may keep unemployment from increasing significantly.

The results of April’s labour market survey (released on Friday, May 10th 2013) suggest that this is now happening. Unemployment remained unchanged after the drop in April, and the economy even regained some 12,500 of the 54,500 it had lost in March. And while, on balance, the number of jobs in Canada has hardly grown since December of last year, there are some signs that better times may lie ahead.

There are two reasons for my cautious optimism regarding the short-term prospects of the job market: The state of the US economy and Canada’s hiring demand levels.

So far, at least, it appears that the US economy has been damaged less than many had feared by the tax increases that took place at the beginning of this year and by the government spending cuts that started in March (the so-called sequester). The US economy`s performance can hardly be described as “stellar”, but the mere fact that it has not gotten into a decline in spite of these drastic measures seems to vindicate those who argued that it is actually in a pretty good shape. This comes with an important caveat though: While the effect of the tax increases should be quite evident by now, the full impact of the sequester is yet to materialize. Most of the affected government agencies are only starting to cut their budgets, and layoffs and procurement changes take time to implement.

Canada’s hiring demand level also remained healthy in April. It did retreat slightly from the March levels, but this is due to seasonal trends (hiring demand is usually weaker in April than in March). Overall, April was the first month of 2013 in which hiring demand caught up with the levels from the same time last year. If this trend continues, unemployment will likely to decline.

So the question now is: Will Canada’s employers continue hiring?

Over the medium-to-long term, Canada’s structural imbalances will prevent strong economic growth. This in turn will keep a lid on hiring demand. Record high household debt (fueled in part by inflated real estate prices) means that Canadians must save more and spend less. We are already seeing the effect on the job and real estate markets, in the form of a softening real estate prices and demand and a decline in the hiring demand from retailers. This trend will continue and will likely accelerate once interest rates start to rise (which is unlikely to occur in the very near future, but cannot be avoided in the medium term).

Another issue is that the long-term prospects for Canada’s largest industry – manufacturing – remain cloudy. Manufacturing actually created 21,000 new jobs in April, but this came after a downward trend that lasted for 9 months. As a result, the number of manufacturing jobs in Canada is still 2.9% lower than it was 1 year ago. Other industries – including the oil and mining – do not have the breadth and growth potential to replace manufacturing as a source of employment and overall wealth. An improvement in the state of the US economy may give a short-term boost to Canada`s manufacturers. But over the long term, Canadian manufacturers need to become more competitive in order to survive. This requires being more productive, which in turn requires businesses to innovate faster. Many studies show that Canadian businesses lack their US counterparts when it comes to innovation. This will not turn around overnight.

On top of that, the international environment may be on a less stable footing than catches the eye. It is easy to forget that the US Federal Reserve (the US central bank) has been running its so-called QE policy for about 4 years now (QE stands for Quantative Easing). The policy involves stimulating the economy by printing and pouring into it large amounts of new money. The measure was originally meant as a short-term emergency measure to unfreeze the credit markets, but there are concerns that the US economy may hay have grown addicted to it (which is one of the reasons why the Federal Reserve has been reluctant to discontinue it). So far QE has not resulted in inflation, but economic theory teaches that it might (and likely will) at some point in the future. It is clear that QE must be withdrawn at some point, along with some of the newly printed money. It is not clear how the US economy will react to such “squeeze”. And in spite of many companies reporting record profits, sales revenues have been lagging.

So companies have been cutting cost to achieve their record profits, rather than selling more. As a result, unemployment in the US still remains at unusually high levels by historic standards.

In spite of all this, there is no denying that the economy seems to be weathering the challenges that it faces better than most analysts expected. Whether it will continue to deliver positive surprises remains to be seen.

written by Strac Ivanov, M.B.A., President of Vicinity Jobs Inc

Manufacturing Job Declines Offset by Job Growth in Service Sectors in February

On Friday, March 8th, Statistics Canada reported that Canada’s unemployment rate remained unchanged in February at 7%. The economy created 51,000 jobs, but the increase was offset by a corresponding increase in the number of people looking for work. February was supposedly a good month for those looking for work in the hospitality industry and in the professional services industry, but a bad one for manufacturing industry workers.

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Canada’s Job Market Showed Unremarkable Peformance in October

Statistics Canada released its latest Job Market on November 2nd, and it shows that Canada’s economy only created less than 18,000 jobs in October. Virtually all were government-funded jobs, while private sector employers actually let more people go than they hired. The 18,000 new jobs were not enough to move the unemployment rate, which remained unchanged at 7.4% . While this performance came after two months of more convincing employment growth, it makes it hard to predict where the job market will go from here. Vicinity Jobs recorded a strong hiring demand in October and this may lead to a better job market performance in November. But the uncertainties persist.

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Canada’s Economy Created 34,000 Jobs in August as Hiring Demand Soared

August’s hiring demand (tracked by Vicinity Jobs in Ontario’s York Region but representative of the general trend for most of Canada) soared to levels not seen since May 2008. Statistics Canada’s monthly labour market survey also points to a surprisingly strong August, although the unemployment rate remained unchanged as more people joined the labour force. These numbers come in a period when the US economy reportedly created a disappointing 96,000 jobs, the recession in the European economies seems far from over, and at home, the debt load of Canadian household remains at a record high.

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July’s Unemployment Growth May Signal More Trouble Ahead

Canada’s economy lost 30,000 jobs in in July 2012, pushing the unemployment rate up 0.1% to 7.3%. The Statistics Canada labour survey report for July shows that most of the jobs lost were part-time, and among women aged 55 and over. The losses were concentrated in a handful of provinces, including BC, Quebec, and Manitoba, while employment remained unchanged in most other provinces, including Ontario and Nova Scotia.

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Market for Jobs in Canada Shows Surprising Resilience in Spite of Global Economic Uncertainty

Written by Strac Ivanov

June 11, 2012: According to Statistics Canada’s labour market survey, released on Friday, June 8th, Canada’s job market seems to be weathering the global economic uncertainties quite well – at least for the time being. A separate report tracking hiring demand that we ( release each month also points to signs of strength in the job market.

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