This Labour Market Downturn was not as Bad as Earlier Ones. Or Was It?

In a new recently released report, Statistics Canada compared the job market impact of the recent economic downturn (2008-2010) with that of earlier recessions. According to the study, employment grew more quickly this time than in the previous two recessions of the early 80’s and early 90’s. However, the report may have overlooked some unique aspects of the impact that this downturn had on the job market.
Employment peaked in Canada in October 2008. A year later employment declined by more than 400,000 but began to recover quickly the following year. The labour force survey of January 2011 indicated that employment took 27 months to recover to its October 2008 level. As illustrated by the graph below, this is not so bad by historic standards:   In comparison, employment took 39 months to recover from the early 80’s recession and 52 months to recover from the recession of the early 90’s.

statcan_unemployment_2008-2010_vs_earlier_recessions


While employment recovered overall, more people remained out of work than prior to the downturn. Several indicators of slack labour market demand such as (the number of unemployed, involuntary part-time work and long term unemployment) were above the pre-downturn levels.

Unemployment
Between October 2008 and October 2010, the number of those classified as unemployed grew by 341,000 (+31%).

During the first 2 years of the 80’s recession, the number of unemployed grew by 669,000 (+75%). In the first 2 years of the 90’s recession, the ranks of the unemployed increased by 453,000 (+42%).

In the recent downturn, permanent layoffs grew more slowly which resulted in a slower increase in unemployment.

Other categories of unemployed grew at a slower rate. The number of new entrants (those entering the work force for the 1st time) and re-entrants (those who returned to the labour force) rose 33% during the recent downturn. There were increases of 50% during the 1st two years of the 80’s recession and increases of 35% during the 1st two years of the 90’s recession.

During the first two years of both previous recessions permanent layoffs accounted for 50% of the unemployed population. Between October 2008 and October 2010, permanent layoffs accounted for less than 30% of the unemployed.

Long-term unemployment increased less than in earlier recessions
One indicator of slack labour demand is long term unemployment. Between October 2008 and October 2010 the number of those unemployed for over a year almost doubled.

However, long- term unemployment grew at a faster pace in both previous downturns. The number of those unemployed during the 80’s recession almost quadrupled during the 1st two years. While the number of those unemployed for more than one year during the 90’s recession more than doubled.

Non-participants in the labour force
During the most recent downturn, those individuals who were neither employed or looking for work (non-participants) increased by 458,000 (equaling about 5% of Canada’s labour force today).   By comparison, the number of non-participants during the 90’s recession increased by 8%.

The number of non-participants during the most recent downturn grew mainly as a result of an increase in the number of those attending school. The student population grew by nearly 250,000 during that period.
Did the Statistics Canada Study Miss Something?

There are several important questions, however, that the study did not analyze:

1/ Why did less people drop out of the labour force this time compared to previous recessions? It is quite possible that, this time, less people were in a position to give up looking for work, since Canadian’s are carrying a higher debt load than ever before, people’s investments have lost significant value with the stock market collapse, and severance payments made by employers may have been less generous than in the previous recessions.
2/ How did the recent recession impact average wages and working hours? It would be interesting to see how hourly wages (including benefits) trended this time compared to the previous recessions.

3/ Did the new jobs that were created really replace old jobs that were lost? We know that in the previous two recessions, the economy regained mostly the same jobs that had been lost in the downturn. The current recession seems to have been different. For example, manufacturing jobs remain much more scarce than they were before the recessions. If higher-paying manufacturing jobs were replaced by minimum wage retail and service jobs, the fact that the overall number of jobs reached its pre-recession level is not particularly comforting.

And finally, the biggest question of all (which StatCan would not be in a position to answer): Is the downturn over yet? With commodities inflation looming, oil and gas prices increasing, public debt in many countries at unsustainable levels, and inflated real estate prices in Canada, the threat of a double-dip recession remains quite real. In 2009 and 2010, governments spent unprecedented amounts of money on economic stimulus (something they did not do in the 80’s and 90’s recessions). This stimulus put serious strain on the fiscal budgets of many developed world countries. Hopefully the worst is over, and the economy will now recover. But if it doesn’t, a repeat of the recession now may be more painful, given that when it comes to softening the blow, governments will not have many options left.

The full Statistics Canada article can be found at the following link:
http://www.statcan.gc.ca/daily-quotidien/110223/dq110223b-eng.htm