Wages up, youth employment rising, older Canadians working
less
TORONTO, Jan. 10, 2018 /CNW/ - Canada's job market is even
better than the recent headlines suggest, indicating that the Bank
of Canada should not look to the
labour market to confirm any trepidation, finds a new report from
CIBC Capital Markets.
"Good headline numbers come and go, but beneath the surface,
where job market demons usually hide, things are also improving,"
says Benjamin Tal, Deputy
Chief Economist, CIBC. "And, where they aren't, it's largely due to
structural forces – well beyond the realm of monetary policy."
His report, "The Canadian Labour Market – Even Better Than You
Think", examines the three key vulnerabilities in the job market
that could jeopardize the current expansion and durability of the
recent improvement in wage inflation – youth unemployment, the
duration of unemployment, and the impact of the 55+ age demographic
– and finds that there's less slack in the labour market than
policymakers perceive.
Better wages, better job quality:
Beyond the impressive creation of more than 420,000 jobs in
2017, the Canadian job market has seen average wage earnings grow
and the creation of more higher-paying jobs last year than
low-paying ones.
"Real labour income is now rising at its fastest rate in five
years," says Mr. Tal.
Youth employment on the rise:
Although youth unemployment has been a source of concern for a
while, that isn't the case anymore.
Mr. Tal points out that the youth unemployment rate has been
falling faster than the unemployment rate among adults. Today, the
youth-to-adult jobless rate is just over 2 per cent, below its
long-term average.
What's more, the real youth unemployment rate is much lower than
suggested by the headline numbers when excluding youth aged 15-18
enrolled in high school who should not be classified as unemployed
as their main activity is learning.
"If it was not for the 'unemployed' high-school students, the
Canadian unemployment rate in December
2017 would have been 5.2 per cent as opposed to the headline
number of 5.7 per cent," said Mr. Tal. "The fact that more
high-school students decide to focus more on school and less on
part-time employment is not a factor that shows real labour market
slack. It shows that people are busy preparing for the labour
market of tomorrow."
The Bank of Canada has also
expressed concern over the youth labour-force participation rate,
which has fallen nearly five percentage points over the past
decade.
Mr. Tal points out that nearly all of that decline is due to
lower participation among high-school students.
"The fact that an increased number of high-school students
decide to focus on school and less on part-time employment is not a
macro factor indicating real labour slack," he says.
Out of work for longer periods:
The jobless rate encompasses both the number of unemployed
people who have recently become unemployed and the number of those
who have been unemployed for a period of time.
The rate at which people become unemployed is currently at a
record low. But, people are staying unemployed longer – and the
issue is that the Bank of Canada
can generally only influence the former, not the latter through
monetary policy.
"The increase in long-term unemployment is largely due to a
mismatch in the labour market – way beyond the domain of monetary
policy," says Mr. Tal.
The 55+ factor:
For those who have been in the Canadian labour force for a
while, Mr. Tal notes that wage inflation and absolute wage levels
are not materially different from that seen among prime-age
workers.
Workers aged 55+ represent the fastest-growing segment of the
labour market, he says.
But, they are also slowly disengaging from the labour force by
working fewer hours each year.
Mr. Tal estimates that in 2017, the 55+ factor reduced the total
number of hours worked by no less than 2 per cent, by far the
largest impact on record. This will only increase in time.
This reduction in the average hours worked is often taken as a
sign of labour market slack, suggesting that the labour market
isn't as strong as perceived. But, this is a
demographically-induced trend that the Bank of Canada cannot do anything to reverse, Mr. Tal
points out.
The report notes that Canada's
labour market will be tested in 2018 by challenges, such as minimum
wage hikes and headwinds from ongoing NAFTA negotiations. The
ultimate impact of those forces is unknown.
"What we do know is that the labour market is well positioned to
face what's coming," he says.
About CIBC
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SOURCE CIBC - Economic Research