Stimulate the Job Market

Although the economy is slowly recovering, the unemployment rate remains stubbornly high - just as stimulus spending is set to end.

While the Canadian economy has begun to slowly recover from the “Great Recession,” the jobs crisis is still very much with us. Yet the federal government is already shifting the focus from support for the unemployed to fiscal restraint and balancing the books. Vital economic stimulus measures such as extended EI benefits and job creation through public infrastructure investment are about to expire.

The performance of the job market in July was nothing short of catastrophic. The unemployment rate rose back up to eight per cent as we lost 139,000 full-time jobs. One worker out of five now works part-time, the highest proportion ever recorded.

Canada has been doing better than the U.S. in recent months, but there is no room for complacency. There are still 266,000 fewer full-time jobs today than at the beginning of the “Great Recession” in October 2008 and there are still almost 1.5 million unemployed Canadians, up more than 350,000 from when the crisis began.

The long-term unemployment rate is also very high. The percentage of unemployed Canadians who have been out of work for more than six months was 22.5 per cent in July. Before the crisis, the long-term unemployment rate was around 12 per cent.

The real unemployment rate, which includes discouraged workers and involuntary part-time workers, is 12 per cent, considerably higher than the eight per cent rate before the crisis.

In Canada as a whole, and even more so in hard-hit communities, the number of unemployed workers collecting EI benefits has been falling much more rapidly than the number of unemployed. As workers have exhausted their benefits, the proportion of unemployed collecting EI has fallen from over 50 per cent last year to just 45 per cent.

Notwithstanding the continuing weak state of the job market, special EI income support and training measures, which were an important part of the federal government’s response to the Great Recession, have or are about to come to an end. These include an extra five weeks of EI benefits for all regular beneficiaries up to a 50-week regional maximum, and a further extension of regular benefits for some so-called long-tenure workers. Access to special EI benefits for workers enrolled in provincial training programs ended in May.

While there are many reasons to be critical of Canada’s EI program, there can be no doubt that it has helped hundreds of thousands of unemployed workers and many hard-hit communities weather the economic crisis. The number of regular EI beneficiaries peaked at 829,000 in mid-2009, and was still 667,000 in April 2010. Taking into account that many workers move on and off EI, even in a recession, likely well over 1.5 million Canadians will have used the program at some point in 2009 and 2010. Some $17 billion in regular EI benefits will be paid out in both 2009-2010 and 2010-2011, even though the average benefit paid is well under $400 per week.

Modest income support from EI has helped working families deal with a severe loss of income following involuntary layoffs, supported active job searches, and allowed high-unemployment communities to survive. Special measures in support of work sharing under EI covering almost 200,000 workers helped prevent many layoffs, and some unemployed workers have benefited from special measures to provide income support for retraining.

Similarly, government investment in job creation has made a significant contribution to the recovery. The federal government allocated over $8 billion to public infrastructure and housing projects in 2009-2010 and again in 2010-11, usually matched by provincial and local governments. But nothing is slated to follow the $4 billion in federal support for provincial and local infrastructure, which is currently funding projects across the country but will expire next March, just as the housing sector has begun to slow significantly.

The federal government and most provincial governments have already announced plans to bring their budgets back into balance at a rapid pace starting next spring in the hope that the private sector will pick up the slack. Total government deficits are forecast by TD Bank to shrink by about two percentage points of GDP over just one year, partly due to recovering revenues but also because of the expiry of stimulus spending and cuts to programs that will cost jobs.

Meanwhile business investment remains very depressed because of over-capacity and weak demand outside of the resource sector. Our manufacturers must deal with a very sluggish U.S. market and a very high exchange rate for the Canadian dollar against the U.S. dollar.

The Bank of Canada and many economists are concerned that we may be entering a period of very slow growth, with some risk of a “double-dip” recession. It seems highly likely that the attempt to quickly balance government budgets through spending cuts will keep unemployment at or above eight per cent, and that the number of long-term unemployed workers will continue to grow.

It is true that Canada has out-performed most other advanced industrial countries in exiting the Great Recession, but this is in no small part because of the special stimulus measures. Rather than lurch suddenly to policies of austerity, support should be withdrawn gradually as and when good jobs are created.

More specifically, there is a strong case for refocusing government support for jobs creation from “shovel-ready” projects to long-term investments that will pay off now in terms of jobs, and pay for themselves down the road in terms of higher productivity and a more sustainable economy. For example, major public transit and passenger rail projects as well as border infrastructure projects have very high rates of return and can be readily financed at very low rates of interest. There is a compelling case for investing in skills so that the long-term unemployed do not fall by the wayside, and workers who are victims of the recession must continue to receive income support.

In short, the still dismal state of the job market demands a new debate over the direction in which we are headed as a country.