Visualizing the robustness of Canada’s labour market

Visualizing the robustness of Canada’s labour market

Usually, Canadians are most directly affected by the state of the country’s economy through its labour markets. When the economy is in a recession and labour markets are weak, Canadians have a tougher time finding a job, their wages grow slower, and businesses hesitate to hire. Yet focusing on only one or two economic indicators can make it tough to assess how ‘healthy’ labour markets actually are. Commonly followed trends such as the unemployment rate and median wage growth may mask important information about the state of the labour market, such as how many workers feel comfortable quitting their job to find a better one. Focusing on a headline indicator tells a clearer story, but risks missing the big picture.

The Institute has therefore put together a new way of visualizing the health of Canada’s labour market, inspired by the Federal Reserve Bank of Atlanta. These figures—known as ‘radar’ or ‘spider’ charts—visualize the state of Canada’s labour market according to twelve indicators (detailed below) that measure the utilization, flow of labour, wages, and the confidence and perceptions of workers and businesses. Each coloured ring represents Canada’s performance on all 12 indicators during a particular quarter (three-month period) since 2001. The closer to the edge of the chart the indicator is, the better the labour market is performing on that metric.

On nearly all metrics, Canada’s labour market is in a much better state today than during the depths of the Great Recession (Exhibit 1).[1] Most indicators related to labour flows and utilization are near their 17-year highs, and both workers and businesses feel relatively confident about the state of the economy. The NEET rate, which captures the share of youth not in employment, education, or training, has fallen substantially (an outward shift on the chart) after remaining stubbornly high for almost the entire past ten years post-recession. The involuntary part time rate has similarly finally recovered to pre-recession levels. The one area of concern is wages, which are growing far slower now than during the Great Recession despite moderate growth in wage pressures (a broad composite measure of labour costs compiled by the Bank of Canada called ‘Wage Common’).  Some analysts speculate wage growth could be held back by unemployment in resource-rich provinces, demographic factors, workers’ limited bargaining power, or poor productivity growth.

Exhibit 1: The state of the Canadian labour market in 2001, 2009 and 2018

The indicators used in these visualizations of Canada’s labour market robustness are divided into four categories and calculated using data collected from a number of sources.[2] While many are closely correlated (especially those with related formulas, such as the unemployment rate and the employment to population ratio) the indicators’ diverging performance can shed light on the overall state of Canada’s labour market at different times. Each indicator therefore helps paint a more complete picture of the state of the Canadian labour market:

Labour flows

Discouraged job searchers rate

Those that are out of the labour force and report being available to work, but did not look for work in the previous four weeks because they believed no work was available, as a share of the total labour force (average across three months in quarter).

Source: Calculated from Statistics Canada Labour Force Survey data

EI claims rate

The number of initial and renewal employment insurance claims filed as share of the total labour force (average across three months in quarter). [3]

Source: Calculated from Statistics Canada Tables 14-10-0005-01 and 14-10-0287-01

Confidence/perceptions

Projected future employment level

Share of firms expecting a higher level of employment over the next 12 months, minus the share of firms expecting a lower level.

Source: Bank of Canada Business Outlook Survey

Firms facing labour shortages

Share of firms reporting any shortages of labour that restrict their ability to meet demand.

Source: Bank of Canada Business Outlook Survey

Intensity of labour shortages

Share of firms reporting more intense labour shortages than 12 months before, minus share of firms reporting less intense shortages.

Source: Bank of Canada Business Outlook Survey

Job quits rate

Population unemployed or not in labour force that left their job within the last month because of dissatisfaction, as a share of total employed persons (average across three months in quarter).

Source: Calculated from Statistics Canada Labour Force Survey data

Wages

Growth in wage pressures

Year over year percentage growth in Bank of Canada 'Wage Common' measure.

Source: Bank of Canada Wage and Costs Indicators

Private-sector wage growth

Year over year growth in median hourly wage (average across three months in quarter), 2018 constant Canadian Dollars, for non-public sector workers.

Source: Calculated from Statistics Canada Labour Force Survey data

Utilization

Employment to population ratio

Share of employed population aged 17-64 (average across three months in quarter).

Source: Calculated from Statistics Canada Labour Force Survey data

Unemployment rate

Share of unemployed labour force (average across three months in quarter).

Source: Calculated from Statistics Canada Labour Force Survey data

Involuntary part time rate

Share of labour force employed part time for economic reasons (average across three months in quarter).

Source: Calculated from Statistics Canada Labour Force Survey data

NEET Rate

Share of population aged 17-29 not employed, in education, or training (average across three months in quarter).

Source: Calculated from Statistics Canada Labour Force Survey data

Importantly, all of these indicators are relatively cyclical measures of labour market robustness. These statistics have all risen and fallen throughout the past 17 years, in line with the degree of tightness in the labour market. In comparison, other indicators, such as labour market participation and wage rates, have had relatively consistent long-term trends in one direction (downward and upward, respectively).

Canada’s evolving labour market since 2001

This visualization is helpful for understanding the state of the Canadian labour market at certain points over the past two decades.

The first period in the dataset, the fourth quarter of 2001, occurs in the midst of a recession in the United States. Although Canada did not enter a technical recession at this time, the national labour market exhibited slack on several indicators, suggesting damage from the recession south of the border (Exhibit 2). This can be shown by comparing the state of Canada’s labour market in each of the fourth quarters of 2001 through 2004.

Exhibit 2: Impact of the early 2000s US recession on the Canadian labour market

According to several indicators—including the employment to population ratio, the EI claims rate, the discouraged job searchers rate, and firms’ projected future employment levels—the labour market was suffering in the final months of 2001. One year later, in the fourth quarter of 2002, three of these four indicators remained very low. However, by the end of 2003 all four indicators had recovered and private-sector wage growth was near its 17-year high. The labour market continued strengthening on most indicators in the fourth quarter of 2004 (although wage growth slowed substantially). On the other hand, by 2004 the discouraged searchers rate had recovered only slightly.

These charts also clearly illustrate the sudden shock to the Canadian labour market from the 2008-2009 financial crisis and recession (Exhibit 3). Labour markets were very tight through 2006 and 2007, including up to the first quarter of 2008. Performance was strong on all indicators, although weaker (but still moderately strong) levels of firms’ projected future employment levels suggest that some expected weakening ahead.

Exhibit 3: The 2008-2009 crash collapsed the Canadian labour market

The 2008-2009 crash suddenly and severely impacted the labour market, as illustrated by the shift inward on nearly all indicators from the third quarter of 2007 and first quarter of 2008 to the first quarter of 2009 and third quarter of 2009. Measures of utilization, labour flows, and (especially) confidence and perceptions collapsed drastically. Interestingly, wage growth remained very strong, likely because wages remained relatively strong in Alberta, Newfoundland, and Saskatchewan, and in the construction, mining, and oil and gas extraction sectors.

These visualizations also add nuance to the characterization of Canada’s slow recovery from the Great Recession. The damage from the 2008-2009 crash was lasting on labour market measures related to utilization and on the job quits rate, which suggests workers remained in dissatisfying jobs because they were not confident that they could find another job (Exhibit 4). And while wage growth also started falling to near 17-year lows through 2010 and 2011, by late 2012 it was back up to near its high during the past two decades. Other measures, such as firms’ labour shortages and the number of EI claims filed, indicate a stronger recovery in 2010 and 2011.

Exhibit 4: Slow recovery of the Canadian labour market from the Great Recession

These visualizations illustrate how economic shocks affected the Canadian labour market since 2001. They also help identify nuances in how the labour market was impacted: for example, that strong wage growth throughout the Great Recession did not mean all was well for Canadian workers. This underlines the importance of relying on a several different economic indicators when making economic policy.

Note: while the Institute typically focuses on the Ontario economy, due to data limitations this labour market analysis had to examine the Canadian labour market. Economic indicators sourced from the Bank of Canada—firms’ projected future employment levels, labour shortages, and growth in wage pressures—are not available on a provincial basis.

Written by: Jacob Greenspon

Photo credit: Tarik Vision, iStock Photography


[1] The latest period in the dataset is second quarter of 2018 because, although data for all indicators is available up to the fourth quarter of 2018, due to the seasonal adjustment process used for data from the Statistics Canada Labour Force Survey some indicators are only available up to June 2018.

[2] The charts were constructed as follows (based on the methodology used by the Federal Reserve Bank of Atlanta): 1) Values of indicators calculated from the Statistics Canada Labour Force Survey were seasonally-adjusted using a ratio-to-12 month moving average approach (other indicators were available seasonally adjusted). 2) The values of each indicator over the 17-year period were ranked in ascending order, except for EI claims, unemployment rate, involuntary part time rate, NEET rate, and discouraged job searchers rate, which were ranked in descending order. 3) These indicator values were assigned to the value of their cumulative distribution function, subtracted from one, and finally plotted. So, for example, the lowest NEET rate observed in the sample period, 12.9% in the fourth quarter of 2007, had a rank of 1 which corresponded to 4.39 in the cumulative distribution function and 95.61 in the chart.

[3] The EI claims rate may be impacted by reforms to the EI program in 2012-2013: https://lop.parl.ca/sites/PublicWebsite/default/en_CA/ResearchPublications/201303E

Category: Economic Progress, Economy, Industrial Policy, Labour, Employment, Financial Analysis, Productivity