Employment & Unemployment Archives - Centre for Future Work

Youth Unemployment: The Canary in the Coal Mine

Jim Stanford — Mon, 02 Feb 2026 06:38:19 +0000

A version of this commentary was originally published at rabble.ca.

Unemployment has remained stubbornly high in Canada, made worse by the consequences of Donald Trump’s tariffs and the lingering effects of high interest rates. As always, young people bear the heaviest burden of a weakening labour market. They are the last hired, and first fired – and hence rising unemployment is a danger sign of labour market turbulence ahead. Last summer had the highest unemployment among returning students since the turn of the century (save the COVID pandemic), and the coming summer job season shows no signs of substantial improvement.

As of end-2025, there were some 420,000 unemployed workers in Canada under age 25, and they faced an average unemployment rate of 13.3%. The 25-29 age cohort can also be defined as ‘youth’; there were almost 200,000 of them unemployed at year’s end. That makes a total of over 600,000 unemployed people under 30, for a combined unemployment rate of about 10%. Unemployment is worst for the youngest workers: 18% for those under 20.

That youngest age cohort (15-19) has also seen the biggest increase in the unemployment rate in the last two years. In addition, the participation rate for all youth cohorts has also dropped somewhat (again, especially for the youngest workers). Without that drop in labour force participation, the official youth unemployment rate would be even higher. Unemployment is worse for young men than for young women.

Conventionally measured youth unemployment (15-24) is typically around twice as high as average unemployment, and the relationship between the two did not substantially change in recent years: youth unemployment has been very high, but rose in step (2 points up for every 1 point rise in the national average rate) with the broader weakening of the labour market.

For that reason, a central focus of the solution to youth unemployment must be a commitment to reduce allunemployment – rather than imagining ways to essentially ‘redistribute’ unemployment, by helping more young people to get hired in the context of a labour market that remains underutilized. Strategies to strengthen overall job-creation include: stronger private and public investment, stronger support for public and caring services, industrial policy to strengthen Canada’s value-added industries, and shifting the emphasis of monetary policy to prioritize job-creation along with inflation-control.

This commitment to full employment at the macroeconomic level can be usefully supplemented by particular targeted supports for young workers. Examples of these measures could include expanded summer and post-graduation job programs, stronger on-the-job and apprenticeship training programs (with direct links to post-graduate job opportunities), and experiential working and learning opportunities (such as Canada’s Katimavik program, or the proposed Youth Climate Corps) that give young people both new skills and general life experience.

There are some strategies for sharing the burden of unemployment that could indeed help young workers who might otherwise be laid off, but in ways that are fair for older workers, too. Work-sharing programs in workplaces hit by downsizing help to preserve overall headcounts (and avoid the main burden of layoffs falling on young workers with less seniority). Early retirement incentives can encourage older workers to voluntarily leave work during a downturn (again preserving employment for young workers with less seniority).

Additional measures can improve pay and income security in jobs disproportionately filled by young people. This would include a commitment to higher minimum wages (since a large share of minimum wage workers are youth), and better regulation of non-standard employment arrangements (such as gig and platform work, where young workers are also disproportionately concentrated).

The general economic well-being of young people can be further improved with other measures such as lower costs for essential services that are used intensively by youth (like tuition fees and public transit), and a comprehensive strategy for addressing Canada’s housing crisis (young people have been hardest hit by the unaffordability of home ownership and especially rents).

A far-reaching proposal in this vein could include a basic income for young people (perhaps 18-25), that would provide baseline income supports to avoid poverty and facilitate young people to undertake education, start businesses, and successfully launch their working lives. Together with the existing Canada Child Benefit, the Guaranteed Income Supplement for low-income seniors, and the new Canada Disability Benefit, this would represent an important incremental step in creating a basic income floor for all Canadians.

Research has shown a ‘scarring’ effect for young workers who start their careers during a downturn, reducing their lifetime earnings trajectories by as much as 10% over their careers. That represents a lifetime loss (in real 2026 dollar terms of almost one-quarter million dollars! This income reduction results from both lost income during the initial years of unemployment, but more importantly from the reduced trajectory of earnings gains over a young worker’s subsequent years of work.

Centre for Future Work Economist and Director Jim Stanford recently spoke on the youth unemployment crisis, and how to support young workers, to the ‘Elbows Up T.O.’ assembly, organized by former Toronto Mayor John Sewell. A video of the full event is available through the ‘Elbows Up T.O.’ website.

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Alberta’s Disappearing Advantage for Workers

Jim Stanford — Sat, 18 May 2024 12:46:31 +0000

Alberta once boasted the highest wages in Canada. It was known as a place where working people could find a job, earn decent wages, and build a good life for themselves and their families.

Unfortunately, this “Alberta Advantage” has mostly disappeared. Average wages have declined by 10% relative to inflation over the last decade, far more than in any other province. This negative result was not an accident: provincial policies in Alberta have worked to deliberately suppress wages, through measures like a six-year freeze in the minimum wage (now tied for lowest in Canada), restrictions on union organizing and collective bargaining, and very austere wage gains for public sector workers.

Last year, Alberta lost its title as Alberta’s wage leader – to neighbouring B.C., where wages have grown steadily thanks to pro-wage policies (like a higher minimum wage and stronger collective bargaining). Alberta’s deliberate wage suppression has distorted the structure of the provincial economy: corporate profits have skyrocketed as a share of provincial GDP, while labour compensation and small business income have eroded. And contrary to old-fashioned “trickle-down” rhetoric, this one-sided pro-corporate strategy has not sparked faster growth, job-creation, and wider prosperity. To the contrary, by most measures Alberta’s growth, investment, innovation, and productivity have lagged most or all other provinces.

Centre for Future Work Director Jim Stanford has prepared a detailed overview of Alberta’s Disappearing Advantage: a 50-page paper with comprehensive data describing the decline in real wages, falling real household incomes, and other indicators of Alberta’s relative decline over the past five years.

To reverse the ongoing decline in real wages, and recapture an Alberta Advantage for workers, the paper recommends the provincial government explicitly welcome higher wages as a sign of economic progress – rather than a danger to be kept down. And then implement specific policies to achieve that goal, including:

An immediate increase of at least 15% in the provincial minimum wage, and further increases in subsequent years that match and exceed inflation.
Reforms in labour laws to give workers more ability to form unions and negotiate better wages and conditions.
Free collective bargaining for public sector workers (in major bargaining rounds occurring in the province this year).
Stronger enforcement of basic labour standards for workers in insecure, temporary, or gig positions.

The paper was prepared for delegates at the Alberta Federation of Labour’s 20204 Midterm Forum in Calgary, May 18. Please see the full paper:

Alberta’s Disappearing Advantage: The Crisis in Alberta Wages, and How to Fix It

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Submission to B.C. Labour Relations Code Review

Jim Stanford — Sat, 11 May 2024 06:20:35 +0000

The B.C. government is undertaking a regular five-year review of its labour relations code, that governs labour standards, union activity, and collective bargaining. As part of this review, Centre for Future Work Director Jim Stanford was invited to appear before the review panel as an expert witness.

His presentation, titled Growth With Inclusion: An Overview of B.C.’s Recent Economic and Labour Market Performance, reviewed numerous indicators of recent trends in employment, growth, and productivity in the B.C. economy. It found that by several metrics, B.C.’s economy has performed better than any other Canadian province.

This data is an important counter to complaints from business lobbyists (including stated in business submissions to this review) that B.C.’s economy is weak and getting weaker. These arguments are invoked to justify business calls for weakening labour standards (such as reversing recent B.C. reforms around union certification procedures, and abandoning B.C.’s prohibition against replacement workers in work stoppages).

Stanford’s submission noted that thanks in part to these and other wage-friendly policies, wage growth in B.C. has been stronger than any other province in recent years, and average wages there have increased over the past five years despite the COVID-19 pandemic and subsequent rise of inflation. Indeed, B.C. now boasts the highest wage for hourly employees in the country, displacing Alberta from that position in 2023.

B.C. is Now Canada’s Wage Leader

While business groups may bemoan this achievement as proof that labour costs are “too high,” Stanford’s testimony also showed that business profits have grown strongly in B.C., business investment in capital and innovation has been stronger than any other province, and the share of total labour compensation in overall provincial GDP has declined, despite healthy wage growth.

While Stanford’s presentation highlighted the progress achieved on wages and poverty reduction, he also stressed that many workers are not achieving adequate compensation or job security (especially those in precarious or non-standard positions, including digital platform roles). That makes it important for provincial labour laws to be strengthened further, with measures (like sectoral bargaining) to extend collective bargaining rights to more workers.

Indeed, as part of his presentation, Stanford also summarized key findings from his research paper on the Economic Benefits of Sectoral and Broader-Based Bargaining. That paper was presented to the review as part of the B.C. Federation of Labour’s submission.

Please see Stanford’s full presentation, Growth With Inclusion: An Overview of B.C.’s Recent Economic and Labour Market Performance.

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Interrogating the Labour Shortage Hypothesis

Jim Stanford — Wed, 11 Oct 2023 21:18:58 +0000

Testimony to the Standing Senate Committee on Social Affairs, Science and Technology, October 4, 2023

Canada’s Senate is investigating temporary migrant labour programs in Canada, which have expanded rapidly in the last two years, and their impact on labour markets and other issues. The Centre for Future Work’s Jim Stanford was invited to provide testimony on the issue of whether a purported “labour shortage” necessitates increased temporary migration inflows to Canada. Here is an annotated transcript of his testimony.

Senators, thank you very much for the invitation to join you today.

I want to stress at the outset that my expertise relevant to your inquiry is as a labour economist. I have some high-level understanding of the implications of immigration policy for labour supply and demand trends and analysis, but I’m not an expert on immigration policy per se. I will limit my remarks and contributions to the issues around labour market balances and imbalances, and how they provide a context for immigration policy.

In particular, I want to directly and forcefully challenge the assumption that Canada has faced and continues to face a so-called labour shortage. We have heard that argument from employers and employer organizations for years, even before the pandemic. Employers from certain sectors – like retail, hospitality, and the small business sector – complain loudly that they cannot find enough workers to do the jobs that they are advertising at the wages that they are offering. Many different reasons have been advanced or hypothesized for this alleged labour shortage, including:

- demographic change and the aging society
- the idea that consumer spending and aggregate demand in Canada is overheated and excess relative to our productive capacities
- even a lack of work ethic or commitment on the part of individual workers; perhaps because they have become lazy and accustomed to public income support.

I think that all of those assertions are wrong. The policy implications that have been advanced by those accepting the labour shortage hypothesis have also ranged widely, including:

- reductions in income support programs to reinforce the supposed incentive to work
- deferment of the retirement age to keep people in the labour force for longer in their lives
- efforts to curtail labour demand through higher interest rates or other forms of demand suppression (which have indeed increased unemployment in the last year, as a result of policices from the Bank of Canada)
- especially relevant for this inquiry, there have been calls from business to open up immigration flows to Canada, particularly through the various temporary permit channels for temporary work or temporary work and study.

I think the labour shortage hypothesis is wrong and, therefore, its implications for immigration policy are also wrong. Far from being inadequate, the labour force in Canada has continued to grow. In fact, the growth of the labour supply in Canada has accelerated in the period since the pandemic, mostly because of liberalized immigration flows (particularly those temporary permits that we discussed).

As shown by the first red circle in Figure 1, labour force growth did slow notably in Canada during the 1990s. Far from causing a “labour shortage”, however, this weak labour force growth was itself a response to persistent unemployment and underemployment during that time (that is, to weak labour demand). This suppressed labour force participation. Later, labour force growth recovered as the economy strengthened in the 2000s.

Figure 1

The COVID pandemic, of course, had a devastating impact on labour markets, including causing an unprecedented drop-off in labour supply (the second red circle in Figure 1) – as workers stayed at home to avoid infection, supported by the CERB program and other emergency measures. That impact was short-lived, however, and labour supply quickly regained and then surpassed its pre-pandemic peak. Now over the last year, the labour force has grown at an annual rate of almost 3% (third red circle in Figure 1) – its fastest growth (other than the post-pandemic rebound) in decades.

Overall labour force participation has remained remarkably stable in Canada over recent decades, despite the demographic aging of society (Figure 2). Participation for the whole working age population, defined as those over 15, continues to hover above 65%, and has fully recovered after the pandemic. In the core working age population, between 24 and 55, labour force participation is at record highs.

One of the reasons overall labour force participation has remained so strong is the growing labour force participation of older workers. Beginning around the turn of the century, labour force participation by those over 55 has grown strongly. It now rests between 35% and 40% of all of those over aged 55 (Figure 3). So the simplistic claim that labour supply will shrink because Canadians are getting older is quite wrong.

Indeed, contrary to the assumption that the population is getting older and that’s why we’re running out of workers, the fastest growth in a working-age population cohort that we’ve experienced in Canada in recent years has been among younger workers. We’ve seen the population of 15- to 24-year-olds grow by over 4% in the last year, compared to 2.5% for the over-15 working age population in total (Figure 4). This means that, on a net basis, Canada’s working age population is becoming younger, not older.

The claim that there’s a labour shortage is also contradicted by the behaviour of wage trends in Canada. We’ve seen a decline in real wages, on average, in Canada since the reopening of the economy after the pandemic, in large part because of the inflation surge at that time. As indicated in Figure 5, real wages spiked temporarily during the lockdowns: this was a statistical anomaly resulting from a composition effect, whereby the disemployment of so many lower-wage workers in retrial, hospitality, and personal service industries (closed during the lockdowns) resulted in an artificial increase in the average wage for those who were left working.

That temporary effect disappeared after those industries reopened. Then real wages began to decline as post-pandemic inflation broke out; average real wages are now 3% lower than in mid-2021 (and even further below their pre-pandemic trend). If something were genuinely in short supply, it should become more expensive – not less expensive.

Significant unemployment continues to exist in Canada, again in contradiction to the assumption that we are in a position of excess employment. The official unemployment rate is 5.5%, which translates into 1.2 million unemployed Canadians. That’s a significant increase since last July, up by 170,000 people. That alone is evidence we’re a long way away from full employment or a true labour shortage.

Moreover, that official unemployment number understates the true underutilization of labour in our labour market. If we included underemployment, involuntary part-time work, and those who have a desire to work but are not ticking all the boxes that Statistics Canada requires in order to be qualified as officially unemployed (including the requirement for ongoing active job search), that number would be much bigger: closer to 3 million, in my estimation.

The whole concept of labour shortage, in my judgment, is an upside-down idea and reflects a very employer-centric view of the world. In fact, economic policy should prioritize full employment as a central macroeconomic goal.

But in a condition of genuine full employment, whereby anyone who wanted to work could find a decent job and find it quickly, employers would complain bitterly about a labour shortage. What makes it easier for workers to find and choose suitable work, implies greater challenges for employers in recruiting and retaining labour. Employers prefer a situation where they can advertise a position and get many willing and qualified applications the next day, some of them offering to work for less than the advertised wage. That is the desire of employers, and that’s one reason why employers have called for measures, including liberalized temporary immigration, in order to recreate a situation that is more to their liking. We can see their wishes being fulfilled today; we see rising unemployment in general, but in particular cohorts of the labour market, we see large numbers of desperate people lining up to take low-wage jobs at places like Wal-Mart.

Relaxing the labour supply constraint on employers dissipates the pressure they would otherwise face to lift wages, improve benefits and job stability, and implement productivity-enhancing technological change. Acceding to employer demands to “get us more workers,” whether through exploitive measures like temporary migration work permit programs or other policy favours (like deferring retirement or cutting income support programs) undermines the goals of improving job quality and equity.

Slides from Dr. Stanford’s testimony to the Senate committee are available here.

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Inflation Accelerates in July Despite Higher Unemployment

Jim Stanford — Thu, 17 Aug 2023 03:10:56 +0000

Statistics Canada reported this week that consumer price inflation in Canada accelerated modestly in July, with the headline year-over-year rate rising to 3.3% (from 2.8% in June). In this commentary, Centre for Future Work Director Jim Stanford argues this adds to growing evidence that there’s no reliable correlation between inflation and unemployment. The commentary originally appeared at rabble.ca.

By Jim Stanford

The uptick in July inflation reconfirms the absence of a predictable relation between inflation and unemployment, and should cast more doubt on the Bank of Canada’s current strategy to cool off prices by deliberately raising unemployment.

Unemployment in Canada has increased significantly since the Bank of Canada began raising rates in spring 2022. In the last 12 months, total unemployment increased by 155,000 persons, and the unemployment rate has risen by 0.6 percentage points (to 5.5% in July).

According to conventional doctrine, inflation should be inversely related to unemployment. This is the traditional ‘Phillips Curve’ theory, which sees most inflationary pressure arising from an ‘overheated’ labour market. (A full review and critique of that theory is contained in the Centre for Future Work’s 2022 paper, A Cure Worse than the Disease, pp. 6-9.)

But while unemployment has been steadily creeping up, concurrent inflation has not significantly slowed.

The ‘headline’ inflation rate reported in most media coverage is the year-over-year change in prices: comparing this month’s prices to their level a year earlier. This year-over-year measure is often strongly affected by price changes that happened many months ago.

For example, the surge in global oil and energy prices that followed the invasion of Ukraine last spring caused a sudden surge in price levels – pushing year-over-year inflation to a peak of 8.1% in June 2022. A sudden surge like that will impact year-over-year rates for many months afterward, even if further growth in prices is moderate.

The decline in year-over-year inflation rates over the subsequent year (falling to 2.8% a year later, in June 2023) mostly reflected the gradual dissipation of that temporary price shock, rather than a decline in broader inflation.

To get a more accurate picture of the immediate pace of inflation, therefore, many economists prefer more immediate measures of price change. A common approach is to consider the change in prices over the most recent three months, annualized to a format comparable with annual rates. Measured by this concurrent 3-month annualized rate, inflation has not consistently slowed at all in the last year.

The chart below compares the unemployment rate to both measures of inflation: the usual year-over-year (headline) rate, and the more up-to-date three-month annualized change. Concurrent three-month inflation has hovered at or below 3% since last August, despite the gradual but significant increase in unemployment over that time.

Headline inflation ticked up in June, mostly due to the elimination of last June’s gasoline price spike from the year-over-year calculations (called a ‘base year effect’ by economists). However, three-month inflation didn’t change, staying steady at 3.1% (annualized). Indeed, the concurrent three-month inflation rate is presently higher than it was in late autumn 2022 and early 2023.

The engineered increase in unemployment (driven both by high interest rates to slow job-creation and labour demand, and by unprecedented increases in immigration aimed at quickly boosting labour supply) has thus had no visible impact on ongoing inflation.

The lack of correlation between unemployment and concurrent inflation is more starkly obvious in the following scatter plot, which compares unemployment (measured along the horizontal axis) with inflation (along the vertical axis). According to the Phillips Curve theory accepted by the Bank of Canada, this scatter plot should form a predictable downward relationship: higher unemployment should cause lower inflation, and vice versa.

In reality, however, there is no correlation in this relationship at all: it’s a jumble of seemingly random dots. (In fact, a linear regression trend line shows a very weak, non-significant positive relationship between the two variables, opposite to conventional Phillips Curve assumptions.)

Because post-pandemic inflation was clearly caused by factors outside of the labour market (namely, supply chain disruptions, shortages of key commodities, the energy price shock following the Ukraine invasion, and aggressive profit-taking by corporations in strategic sectors of the economy), it is not surprising that the engineered increase in unemployment over the past year has had no visible impact on price increases.

The future course of inflation will be equally hard to predict, on the basis of developments in the labour market alone. For example, world oil prices (set on highly financialized futures markets) have increased by about $10 (U.S.) per barrel in the last month, driven by speculation that output cuts by OPEC and Russia might reduce future supply. In Canada’s privatized energy market, those futures market developments flow straight into domestic prices for gasoline, fuel oil and natural gas – and further boost the record profits pocketed in the last two years by the petroleum industry. That would undo much of the progress in reducing inflation that has been recorded over the past year. And simply creating still more unemployment in the labour market won’t stop it.

In essence, the 155,000 additional Canadians pushed into unemployment in the past year, and hundreds of thousands more whose jobs are jeopardized by continuing monetary austerity, are macroeconomic hostages. They did not cause current inflation. But they are being punished in an effort to reduce inflation faster and further, in line with the Bank of Canada’s one-dimensional mission. Worst of all, their sacrifice is to no avail: so far, higher unemployment has had no visible impact on inflation at all.

There is no doubt that by punishing workers, stalling the economy, and elevating unemployment more dramatically, the Bank of Canada could eventually wring inflation out of the economy – regardless of the fact that inflation did not arise from excess employment or spending power among Canadian workers. By causing a slowdown big and painful enough to forcibly suppress spending, the impact of other inflationary pressures (even record corporate profit-taking) can be offset, and inflation correspondingly reduced.

But this strategy is as inefficient as it is unfair. We’d be better off to target the true causes of inflation: by regulating prices of essential commodities (like energy, rents, and key foodstuffs), capping and taxing back excess corporate profits, and stimulating more supply of housing (rather than suppressing construction with high interest rates, driving housing costs higher).

Inflation has abated significantly since the price surge a year ago. That progress had little to do with higher interest rates. And the next yards of the inflation battle are going to be much harder to traverse. Misplaced finger-pointing at workers’ wages is going to get louder. And workers and unions will need to fight harder than ever for an anti-inflation strategy that addresses the true causes of inflation, rather than scapegoating its victims.

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The Failures of ‘Trickle-Down’ Economics in Alberta

Jim Stanford — Wed, 24 May 2023 21:57:27 +0000

Since its election in 2019, the current provincial government in Alberta has emphasized a classic ‘trickle-down’ economic strategy. It argues that by boosting profits of private business, capital investment will grow, and job-creation, rising incomes, and economic growth will then ‘trickle down’ to the rest of the population.

The key elements of this business-focused strategy (consolidated under the moniker of the ‘Renewed Alberta Advantage’) include relaxed business regulation, a four-year freeze in the provincial minimum wage, privatization of public services, and a one-third cut in the provincial corporate income tax rate (from 12% to 8%).

Those policies are now being debated in the provincial election campaign. For example, the NDP has proposed a partial reversal of the corporate tax cut: lifting it to 11%, still the lowest in Canada. Business leaders and conservatives have responded with dire warnings that corporations would then flee the province, taking investment and jobs with them.

To evaluate these dark predictions, it is important to examine whether the trickle-down strategy delivered any of its promised benefits in the first place. In a new research report (jointly published with the Alberta Federation of Labour), Centre for Future Work Director Jim Stanford has compiled official Statistics Canada data for 10 different economic indicators, comparing Alberta to other provinces since these policies were implemented after the last election.

Contrary to the promises of trickle-down advocates, Alberta’s economic performance has badly lagged other provinces. In fact, by most of the indicators surveyed, Alberta has ranked dead last among provinces since the implementation of these policies beginning in 2019.

For example, business capital spending did not increase under the lower tax rate. When the tax cut began in 2019, business non-residential capital spending weakened. It then plunged further in 2020, when the lower rate was fully phased in, and has remained weak despite the re-opening of the world economy and surging oil and gas prices.

Non-residential fixed capital spending totaled just $45 billion in 2021, almost 20% lower than 2018. That equaled 12% of provincial GDP in 2021 – the lowest since Statistics Canada began publishing provincial GDP data in 1981. Preliminary data suggests the investment share declined further in 2022, to just 11% of GDP. Alberta’s share of Canada-wide business spending has also declined to historic lows since taxes were cut: falling to 21% in 2022, from 24% in 2018.

It’s not just business investment that performed poorly over the last four years. By several other economic metrics, Alberta has badly underperformed other provinces.

In sum, it seems that trickle-down economics has been more focused on redistributing the economic pie, not growing it. Profits have surged to record levels – the only metric on which Alberta outperforms the rest of the country. Unfortunately, the flip side of that unprecedented corporate success has been the erosion of real living standards for most people.

Please see Jim Stanford’s full report, The Failures of Trickle-Down Economics in Alberta.

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The False Doctrine of the ‘Labour Shortage’

Jim Stanford — Tue, 14 Feb 2023 06:24:12 +0000

A common argument that Canada faces a severe ‘labour shortage’ is being invoked to justify regressive policies in many areas: including higher interest rates, record-high (but exploitive) immigration programs, and pushing back the normal retirement age. In this column, originally published in the Toronto Star, Centre for Future Work Director Jim Stanford shows that Canada has not ‘run out’ of workers. Forcibly creating a cushion of surplus labour (through policies to compel labour supply or restrict labour demand) will make life easier for corporate HR managers. But they will undermine the life changes of millions.

Humans are not Widgets, and we aren’t in ‘Short Supply’

By Jim Stanford

Busy people often lament, “I wish there were more hours in the day!” They struggle to get all their tasks completed. An extra hour or two each day would surely ease the pressure.

While this frustration is understandable, no-one seriously believes our days are too short – nor that time pressures would be solved by stretching the day to 25 hours. Almost certainly, our to-do lists would just get longer, and we’d quickly face the same time crunch again.

This same flawed logic infects the chorus of complaints these days about a so-called ‘labour shortage.’ Employers moan they can’t find enough workers. They preferred it when unemployed workers abounded, and simple job ads could elicit dozens of applications.

Tiff Macklem, Governor of the Bank of Canada, also cites employers’ complaints as justification for painful interest rate hikes. He aims to ‘solve’ the labour shortage by deliberately raising unemployment.

The federal government, too, is catering to employers by increasing immigration targets to all-time highs. Properly planned and supported immigration is good for the economy and for society. But importing masses of workers just to make life easier for employers is the wrong way to do it (especially using exploitive temporary migrant programs).

At any rate, just increasing the number of people in the country doesn’t magically fix the labour market. Yes, there are more people to work, but now there is more work to do (since the population requiring housing and subsistence also grows). It’s like lengthening the day to 25 hours, while adding more tasks to your list.

Labour shortage narratives are also heard loudly in the social policy arena. For example, employers want Employment Insurance benefits cut, to compel unemployed workers to accept lower-paying jobs.

Others want to postpone the retirement age, to pressure Canadians to work longer. This, too, is a false solution. Yes, Canada’s population is ageing. But it’s wrong to assume this will translate into a crisis in labour supply. Strong labour force participation (including many over 65 who voluntarily keep working) is offsetting demographic trends, and keeping the labour force growing.

All these policies would make it harder for Canadians to find and keep good work – which should be our central economic goal. Pushing more workers into the labour market, while reducing job opportunities, will certainly make like easier for HR managers. But it will undermine life chances for most Canadians.

Statistics prove that Canada is not anywhere near ‘running out’ of workers. There are over one million officially unemployed. Another million or more are underemployed, working short hours or in menial jobs that don’t fully utilize their abilities. And at least a million more potential workers (including hundreds of thousands of female parents, and hundreds of thousands of non-employed who aren’t counted as officially ‘unemployed’) sit on the sidelines of the labour force.

Fully employing these Canadians would expand national output by 15 percent. It would reduce poverty and exclusion. And it would allow us to undertake vital priorities: like strengthening health care, expanding green energy, and building affordable housing. Instead, the economy is being deliberately held back to maintain an ample buffer of idle workers, ready anytime employers need them.

To be sure, employing every available worker (and achieving genuine full employment) would require careful planning and supports. We’d need stronger vocational training pipelines: to train and retrain workers, and connect them with relevant jobs. We’d need stronger child care, flexible hours, and public transit to support healthier work-life balance. And we’d need different ways of setting wages: through industry-wide negotiations that lift real wages steadily and sustainably (alongside productivity), rather than using unemployment as a weapon to keep wages in line.

Ultimately, the terminology of ‘labour shortage’ propagates an employer-centric vision. It portrays the economy as a machine – and human beings as just another input to that machine (like energy, raw materials, or widgets).

In fact, the economy is there to serve us, not the other way around. The economy is the place where we use our energy and skills to produce the goods and services we need for a good life. If workers are fully occupied, that means we’re doing a good job supporting ourselves.

We shouldn’t complain about that, or try to prevent it. We should celebrate it.

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Is the Economy “Hot”? Or is it Cold, and Getting Colder?

Jim Stanford — Tue, 24 Jan 2023 03:25:28 +0000

The Bank of Canada is widely expected to increase its policy interest rate again this week, for the eighth time in the last 10 months. Media and financial market commentary on its decision has made numerous throwaway references to how Canada’s economy is still “running hot,” and that i why a rate hike is needed.

This common claim is surprising, and not consistent with economic evidence. Canada’s economy is not “running hot” by any concrete measure. Here are six:

Final domestic demand in Canada has been weakening for over a year, and was shrinking in the third quarter of 2022 (latest data). Were it not for the export sector (with the trade balance lifted by both growing exports and falling imports – the latter itself a sign of weakness not strength), GDP growth would have been negative.

An enormous build-up of business inventories (the biggest in history by far) has also supplemented GDP growth over the last 2 quarters. Partly this reflects firms rebuilding stocks after the supply chain disruptions of the lockdowns. But partly it is also a sign that consumer sales are falling. This build will soon reverse as retailers reduce orders to draw down large stockpiles, and consumer spending slows further. The resulting contraction in inventories will exacerbate negative GDP results in coming quarters.

Real consumer spending contracted in the third quarter of 2022. The latest monthly retail sales data (for November) also confirms a decline in real retail sales. They will fall further as interest rate hikes bite into disposable income for mortgage holders and other borrowers. Indeed, extra debt charges paid by households ate up 0.6% of GDP in the third quarter (again, by far the biggest quarterly increase in history), and will take bigger chunks ahead.

Residential construction investment fell 15% in the third quarter of 2022, on top of a 32% fall in the second quarter. Construction has been the strongest engine of post-COVID recovery: in fact, as revealed in our recent Centre for Future Work report on weak business investment, 2021 was 1st time ever in Canada that residential investment exceeded all non-residential business investment (on structures, machinery, and intellectual property). Now it’s in freefall.

With all these headwinds, real GDP growth has slowed to a crawl in recent months (0.8% annualized in October, latest data). The gap between actual and trend GDP has been widening since rate hikes started. Canada’s economy is not “overheated”, operating above its potential. Rather, premature austerity (with interest rates rising and government spending falling) is locking in a condition of underutilization, with both aggregate demand and aggregate supply well below where it could (and should) be.

Even in the labour market, the evidence of an economy “running hot” is not conclusive at all. Job-creation has experienced two good months (October and December) out of the last nine. Remains to be seen whether those were blips, or whether real momentum has been reestablished after a very weak spring-summer (when employment declined).

The main data point invoked to support the “running hot” hypothesis is the unemployment rate, which at 5% is at a historic low. But the level of the unemployment rate only measures the current labour supply-demand balance. It does not indicate future economic trajectory: the economy can start with low unemployment, yet still experience a recession. And there are many factors (including demographic changes, and COVID disruptions to normal immigration patterns) which explain why the unemployment rate is relatively low, despite an economy that is actually lacking macroeconomic momentum.

An economy that was really “running hot” would have much stronger GDP growth (in the range of 4-5%, not under 1%), strong growth in leading indicators (like construction, business sentiment, and investment intentions), and rising real incomes. Canada has the opposite on all these measures. It is not credible to suggest the economy is “running hot”.

Despite this evidence, the Bank of Canada will almost certainly hike its interest rate again on Wednesday anyway. The Bank has been explicit that it targets inflation, not employment or GDP growth. Inflation is falling (for reasons unrelated to their interest rates), but nowhere near its 2% target. The Bank will keep hiking (even if economy enters recession) until its target is clearly in sight.

We can have an honest debate about whether this is the appropriate course of action. But we should be honest about the existing condition of Canada’s economy – which can be verified empirically. It isn’t “running hot.” It’s pretty cold already, and definitely getting colder.

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Economic Outlook for 2023: Soft Landing or Hard Impact?

Jim Stanford — Tue, 27 Dec 2022 05:33:42 +0000

In this year-in-review column, originally published in the Toronto Star, Centre for Future Work Director Jim Stanford reflects on the turbulent economic events of 2022 – dominated by the rise of global inflation, and a dramatic shift in monetary policy in Canada and many other countries. The outlook for 2023, unfortunately, will likely be determined by the side-effects of that harsh monetary policy medicine.

Workers are Being Sacrificed to a Doctrine that Intentionally Keeps Unemployment High

by Jim Stanford

Economic events during 2022 were dominated by the rise of global inflation, surging to the fastest pace in decades. Economists had thought this spectre was long dead and buried, after years of seemingly effective oversight by central banks to keep inflation subdued.

But following the disruptions and chaos of COVID, the inflation zombie suddenly rose from the grave. A combination of supply shocks from lockdowns, transportation disruptions, huge shifts in consumer demand (with travel and eating out replaced by purchases of home electronics and building supplies), and a major energy price shock, global prices took off.

The second act of this drama will play out in 2023. But the main actor won’t be inflation itself, already abating. Rather, the year will be dominated by the side-effects of policies enacted to curtail inflation.

Despite the unusual features of post-COVID inflation, central bankers responded by pulling out a forty-year-old hymnbook. Developed after the wage-price spirals of the 1970s, that old-time gospel preaches that inflation is caused by overheated labour markets, greedy unions, and accelerating wages. The remedy is high interest rates to cool off spending, recreate a desirable cushion of unemployment, and restore enough fear and insecurity among workers to keep wages firmly in check.

Although Canada’s inflation is significantly lower than the U.S. and most other OECD countries, the Bank of Canada took up this crusade with gusto. It lifted its policy rate from 0.25% to 4.25% – the fastest monetary tightening in Canadian history, and second only to the U.S. among major industrial countries. Interest rates on mortgages, credit cards, and car loans soared much higher.

Canadian households are now suffering an unprecedented shock from this ice bath of monetary restraint. Annualized interest payments by consumers soared $27 billion from early 2022 to the autumn quarter (most recent data available). That’s about 1 full percentage point of GDP, enough to cause consumer spending (which accounts for over half of the economy) to shrink.

But the worst is yet to come, since it takes 12 to 18 months for higher rates to trickle through mortgage refinancing and other channels. Typical families will need to find $1000 per month or more for extra interest when their mortgages turn over. The domestic economy fell into recession in the autumn; only expanding exports kept GDP growth above zero. The slowdown will deepen in 2023, as declines in consumption, housing construction, and business investment drag down overall incomes, GDP, and employment.

It seems perverse, but this is exactly what the central bankers are trying to achieve with their effort to chill spending. In this worldview, any government efforts, however small, to ease the pain of Canadians (like the federal government’s modest enhancements to low-income tax credits) only perpetuate the inflation the Bank is trying to squash. Governor Tiff Macklem put it bluntly in a Toronto speech in November: he wants unemployment to increase, because he thinks labour markets are “unsustainably” tight and wages (which have lagged behind inflation for 21 straight months) are growing too fast. Workers must suffer job loss and still more real wage reductions to fix inflation that was clearly caused by others.

The Bank and a few other optimistic forecasters are hoping for a ‘soft landing’ next year: a stall in growth for a few months, perhaps enough to technically qualify as a recession (defined as two consecutive quarters of contracting GDP), but only a mild one. Others are less sanguine about the depth and length of the coming slowdown. History suggests interest rate hikes of this magnitude lead to painful recessions, with much higher unemployment and many other economic, social, and fiscal consequences. After the hardship and uncertainty of the last three years, a harsh recession will be a bitter blow indeed – all the more so knowing it was avoidable.

Ironically, inflation is already coming down, as the global disruptions that pushed prices skyward reverse themselves. Shipping costs, energy prices, and many minerals and agricultural prices have fallen steeply in recent months. Canada’s year-over-year inflation rate eased slightly to 6.8% in November – and much more moderation is in store, regardless of interest rates. Gasoline prices are closing out 2022 lower than they started the year; that alone will trim inflation by a full percentage point or more.

Some will claim this slowing of inflation vindicates the determination of central bankers to cool off the macroeconomy – even though prices were moderating anyway, and it’s too soon (even in the Bank’s own models) for interest rates to get the credit. Meanwhile, the economy risks serious recession from an interest shock that was neither necessary, nor effective in reducing inflation. Hundreds of thousands of Canadians could lose their jobs, and many their homes.

Why? They’re being sacrificed to visibly reassert a doctrine that keeps unemployment deliberately high – not just to control inflation, but more importantly to control workers.

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Latest Interest Rate Hike Increases Risk of Recession

Jim Stanford — Fri, 09 Dec 2022 19:29:11 +0000

On December 7, the Bank of Canada increased its policy interest rate for the seventh time since March, by another super-sized increment of 50 basis points (0.50%). The rate is now set at 4.25%. The Bank of Canada has been among the most aggressive of any OECD central bank in lifting interest rates to slow economic activity.

Centre for Future Work Director Jim Stanford was interviewed about the Bank’s decision in numerous media outlets.

In this segment on CBC News Network, anchor Andrew Nichols asked about alternatives to higher interest rates for controlling inflation:

Another CBC story, by Stephanie Hogan, provided a roundup of differing views (including Jim’s) on the efficacy of higher interest rates in combatting inflation.

The latest rate hike comes on the heels of Statistics Canada’s latest report on the state of Canada’s economy. This report showed that the domestic economy (excluding foreign trade interactions) is already contracting. In this detailed review of the third quarter results, Jim Stanford highlighted numerous signs of emerging economic weakness: including rapidly accumulating inventories, falling consumer spending, and falling real household incomes.

The data, along with a weak Statistics Canada employment report for November, indicate that the Bank of Canada’s claim that Canada suffers from “excess demand” (arising from an “overheated” labour market and rising wages) is inconsistent with evidence of falling real wages and contracting domestic spending. The imposition of continued monetary tightening despite signals of economic weakness suggests 2023 will be a very rocky one for Canada’s economy.

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