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A labour market with few wrinkles

Canada’s labour market was spared some of the more dramatic peaks and troughs of the economic crisis. Why?

At the height of the crisis in 2009, unemployment in Canada was at the OECD average of 8.3%. This was well above pre-crisis levels. But recovery has been strong, especially in relation to its closest neighbour. “There has even been a reversal in the historic fortunes between Canada and the United States,” says John Martin, Director for Employment, Labour and Social Affairs at the OECD. “Until recently Canada had a higher unemployment rate than the US. Unemployment rates in April 2011 were 9% in the US, compared to 7.6% in Canada.” In the gentler climes of 2007, unemployment was 4.6% in the US and 6% in Canada. On the other hand, the share of the long-term unemployed (those out of work for more than 12 months) in total unemployment was only 12% compared with 29% in the US and an OECD average of over 32%.

This determination to avoid long-term unemployment is one reason for the change of fortune. Work-sharing agreements, in which employees forsake some of their hours rather than be laid off, were extended from the initial 14 weeks to 78. It also successfully extended employment insurance to protect workers who had lost their jobs from becoming discouraged and abandoning their efforts to find a new one.

Young people were the biggest casualties of the crisis. But again, Canadian youth took less of a bruising. The unemployment rate for young people in 2010 was 14.8%, 2 points below the OECD average, and almost 4 points below the US.

Education has helped. “Canada has an extremely well-educated youth population compared to virtually any other OECD country,” says Mr Martin. Students also face fewer hardships in finding a job and keeping it once they leave school. In 2008, over 75% of first jobs were permanent and full-time. Admittedly the crisis sapped some of that vitality, but even so, long-term unemployment is rare. In 2009, it was 16.9% among 16 to 24-year-olds in OECD countries; in Canada it was a mere 2.6%.

The frontier between education and work is blurrier in Canada than in other OECD countries. This may not always be a good thing. Canadians enter the workplace quite young. The minimum working age in the province of Alberta is 12, compared to 14 for the rest of the country. Since work is limited to two hours per day, it seems harmless. But the OECD warns that young people may be tempted to abandon school for employment, compromising future opportunities. One way to keep them in school is to start them earlier. The OECD found that enrolment in pre-school, especially of children from low income or otherwise disadvantaged families, provided valuable socialisation and kept them from dropping out of school later on.

With one in five Canadians foreign-born, almost double the OECD average, one might think that unemployment among immigrants would be higher. But the OECD found little difference. Part of this is due to Canada’s “skilled worker class” programme, which selects immigrants based on a points system. Nearly half of Canadian immigrants enter under this system. But immigrants still have a tougher time finding jobs, as do aboriginal Canadians. For their children, it’s a different story: no less than 30% of immigrant children between the ages of 25 and 54 are in professional occupations, compared to 26% of Canadian-born parents. Yet is Canada squandering this wealth? “There are persistent earnings gaps between immigrants and native-born Canadians in the same occupations,” admits Mr Martin. “And one of the reasons is that employers attach virtually no value to qualifications acquired abroad. Canada is wasting some of the potential of these immigrants.”

Canada should also reform its Employment Insurance system, under which a seasonal employer (say, the captain of a fishing trawler) or other business that lays off employees on a cyclical basis, pays less tax than a non-seasonal employer. What happens is that the non-seasonal employer effectively subsidises the seasonal one. The OECD has long recommended the use of employer experience rating, so that seasonal employers pay their share.

“Canada’s labour market has ridden out the crisis well,” says Mr Martin. “The main challenge now is to continue.”


References

OECD (2010), “Seeking Success in Canada and the United States: Labour Market Outcomes among the Children of Immigrants,” from Equal Opportunities? The Labour Market Integration of the Children of Immigrants.

OECD (2010), “Employment Outlook 2010–How does Canada compare?”

See www.oecd.org/canada

OECD (2008), Jobs for Youth: Canada.

OECD (2010), OECD Economic Surveys: Canada.

OECD (2011), Society at a Glance 2011–OECD Social Indicators.


©OECD Observer No 284, Q1 2011