Ontario Labour Market Update December 2017: Uneven Gains
The latest Labour Force Survey numbers left economists stumped as the Canadian economy continued on its hiring spree, adding 79,500 net new jobs in November 2017. The 12-month run of consecutive job gains takes the unemployment rate to 5.9 percent, the lowest rate since February 2008 and significantly below the 6.2 percent that was expected by economists. Despite a surprisingly positive jobs report and continued strength in wage growth, the Bank of Canada chose to keep interest rates at 1 percent. Still, given the recent performance of the Canadian economy, it is likely only a matter of time before the overnight rate is raised again.
If the employment numbers have taken the main stage of economic news in Canada, surely Ontario has been its star performer. Ontario alone added 43,500 net new jobs in November, taking its six-month net employment tally to 133,900. The last time job growth over a six-month period was this high in Ontario was between June and December of 2002. The majority of this increase is attributed to growth in full-time jobs (105,200). Wages have also begun to show some life after a lengthy slump. After 17 months of year-over-year nominal wage growth below 2 percent, wages in November grew by 2.3 (Exhibit 1).
Beyond the headline statistics, it is important to single out two prominent factors behind Ontario’s labour market outcomes over the last year: older workers and the retail trade sector.
Older workers dominating labour market success
The fiscal and economic pressures of an aging demographic in Ontario are very real as older individuals are less likely to participate in the labour force, lowering overall economic activity and potential tax revenue. However, despite trailing in labour force participation against countries like Sweden, the presence of older workers in Ontario’s economy is getting stronger over time.
Employment gains for those 55 years and over represented more than half of the total employment growth in November. This was more or less the trend over the last 12 months as 107,000 jobs out of the 180,800 total net new jobs since November 2016 went to this segment of the population. The labour force performance of the core working age population (ages 25-54) pales in comparison, increasing by 23,100 new jobs over the same period.
As the population in Ontario continues to age, those aged 55+ will naturally capture a higher share of job growth, but even then are disproportionately representing the gains in the labour market. The participation rate, the percentage of the population actively looking for work, for individuals 55 years and older has never been higher. Since January 2008, their participation rate has gone up by 3.9 percentage points (Exhibit 2). This means that the number of older individuals seeking employment has been increasing at a faster pace than the overall growth of the population aged 55+. Not only are older individuals more active in the labour force, they are obtaining employment at a higher rate. Over the same period, their employment rate, the percentage of the population that is employed, has risen by 4 percentage points. On average, the increase in participation has been matched with success in finding employment. For the core working age group, still the greatest proportion of Ontario’s total population, the outcomes have been starkly different since 2008. Between January 2008 and November 2017, their participation rate and employment rate have dropped by 1.5 percentage points and 0.8 percentage points, respectively.
The total participation rate in Ontario has stabilized around 65 percent throughout 2017, but those in the core working age population continue to drop out of the labour force. After a brief recovery at the beginning of 2017, the participation rate for this age group fell to 84.8 percent in November as 46,000 individuals exited the labour force since January 2017. Diminishing labour market performance for the core working age population in Ontario can be best illustrated by their employment rate. While the employment rate in Canada has returned to pre-recession levels, Ontario’s rate has sharply diverged from the national average since the start of the year (Exhibit 3).
Short-shelf life for retail employment
Retail employment is also disproportionately represented in job growth. Roughly 30,000 out of the 43,500 net new jobs in Ontario in November 2017 were created in the wholesale and retail trade sector, as well as over 40 percent of total job growth in the past year. Employment in retail trade in particular has risen sharply between April and November (Exhibit 4).
This boost in retail jobs, while contributing to favourable job numbers, could prove to be short lived. Retail may have had a successful November in the United States but retail chains in the US have announced 6,800 store closures within the first three quarters of the year. The retail crunch may only have just begun as factors such as debt over-load and an excess of retail space force more and more retailers to wind down. Both the US and UK have been shredding retail jobs due to the increasing influence of e-commerce on the industry. In the US, the share of retail employment has been falling steadily over the years. For Ontario, retail employment as a share of total employment in the month of November has only recently jumped back up following a significant drop after 2009 (Exhibit 5). It is difficult to imagine that it will remain this high, especially as consumer habits shift towards online spending. In 2016, revenues from e-commerce only made up roughly 7 percent of retail consumption in Canada, lagging the US and UK where e-commerce now accounts for 10 and 15 percent of retail revenue, respectively.
Recent announcements point to significant changes in the retail sector over the course of the next few years. Sobeys is reorganizing its business, eliminating 800 office jobs in the process; Metro is shifting its focus to e-commerce and home delivery while cutting back store hours for some locations; Loblaws is shutting down 22 stores and plans to offer an internet based home delivery service. As e-commerce continues to increase its influence, technological adoptions intensify, and the higher minimum wages come into effect, the outlook for traditional retail jobs is quite pessimistic.
Rampant job growth and signs of strong wage growth are wins for Ontario, but lopsided success in the labour market for older workers and in the retail sector are significant concerns for the economy at large. The core working age population is the anchor of an economy and any sustainable economic progress is contingent on their outcomes. The participation rate and employment rate for this group in Ontario have not fared well since the last recession and must be closely followed going forward. Additionally, the retail sector, while currently experiencing a spike in employment, is especially vulnerable to technological change and minimum wage hikes. The changes in minimum wage will certainly increase the hourly wages of existing retail jobs, which tend to have lower wages on average. However, traditional retail jobs are unlikely to be a significant part of future employment growth. Ideally, employment growth will come from higher value-added jobs, with better pay, instead.
Written by Saad Usmani