Job Market Takes Years To Recover From Recession

Job market takes years to recover from recession
Immigrants, women and youth hardest hit by rising unemployment during previous slumps

Feb 09, 2009 04:30 AM
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Miles Corak
Toronto Star

A rising unemployment rate is the clearest signal that turmoil in the U.S. financial and housing markets is heading north, hitting where it hurts.

It indicates how many Canadians have jobs, how many are looking for them, and how much they are likely to be earning.

Of all the numbers in the finance minister's budget papers, it is the one that comes closest to staring back at us with a human face.

The federal budget predicts that the unemployment rate will be 7.5 per cent over the course of the coming year, meaning that around 1.4 million Canadians will be looking for work every month.

Statistics Canada already puts that figure at 7.2 per cent, and the budget doesn't see a return to the 2008 unemployment level of 6 per cent until sometime in 2013 or 2014.

Indeed, during the last three decades Canadians have lived through three recessions, and each time the unemployment rate increased sharply and quickly and persisted for years before declining slowly and sluggishly.

But what else is going to happen this time round?

Past recessions also teach us that when workers with a good deal of job experience lose relatively well-paying jobs their fall in earnings is substantial and permanent.

Displaced workers are the refugees of the labour market, taking years to find a new employer and suffering a substantial loss in their standard of living that will never be recovered. It is this threat that has focused attention on the automobile, manufacturing and related sectors.

When these jobs are lost, government-sponsored training may not be much help. The provinces have already received significant funds for job-market training through the Employment Insurance program since the mid-1990s, and now the budget has given them a $1 billion more.

But the fact of the matter is that they are hard-pressed to produce any credible evaluations that this money has produced results for workers displaced from long-term jobs. For these workers, the pay will never be the same, training or no training.

From past recessions we also know that, perhaps ironically, the prospect of workers leaving an employer actually falls. Yes, as we are already seeing, layoffs increase, but while the first response of firms to lower sales is to stop hiring, for employees it is to stop quitting. The result is that, on average, workers are more likely to stay with the same employer than not.

This more rigid job market is hostile to newcomers, those who begin looking for their first job or for a job after a long time out of the labour market. They shoulder a big part of the burden and they make up a large number of the most vulnerable.

In the past, many of them have been women looking for a job after raising children, or young people looking to start a career. During previous recessions, unemployment rates for these groups were much higher than the Canadian average.

But this is less likely to be so this time round. More women have higher levels of education, better jobs and more seniority, not having left their jobs to raise their children.

And with the aging of the baby boom generation, the young are much fewer in number than two decades ago. They also will be able to cope the same way they did then: by continuing their education; shifting to temporary jobs; and living longer with their parents.

But the other important lesson from the early 1990s was how hard the recession was on immigrants, the other significant group of newcomers who are likely to be among the most vulnerable this time round.

An important made-in-Canada policy that led to the 1990-92 recession being worse than it need have been was the decision to maintain high immigration levels without paying sufficient attention to how the job market would respond.

The government at the time actually increased the number of immigrants through the entire course of that business cycle downturn, and in 1993 it surpassed a quarter of a million, its highest level up to that point and the second highest ever.

Many of these newcomers headed to parts of the country, Toronto in particular, that were hardest hit. The result was higher joblessness, lower pay and higher poverty rates.

In fact, virtually all of the increase in poverty during this period was accounted for by those newly arrived to the country.

Barely two months ago, the federal government announced “Canada will stay the course on immigration in 2009, welcoming between 240,000 and 265,000 new permanent residents” and thereby maintaining the highest levels of the last 15 years.

These newly arrived immigrants and other recent arrivals will be the first to hit the wall of a rigid labour market, and they will not be able to cope in the same way as others new to the labour market: mom's basement is not available; without job experience they will not qualify for EI benefits; and the competition for low paying and temporary jobs will be stiff, further lowering the wages paid.

While the budget offers $50 million to promote the recognition of foreign credentials, this is going straight to the provincial bureaucracies, which are not slated to report on their progress until the autumn.

There is little in the budget that speaks to the needs of immigrants, and it will likely be their faces, not just those of threatened manufacturing workers and younger Canadians, who will be staring back at us in the coming years.

Miles Corak is a professor of economics with the Graduate School of Public and International Affairs at the University of Ottawa.