Postmortem: Low-wage workers are being left behind

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Financial Post columnist Kevin Carmichael, editor of the FP Economy newsletter, unpacks the week in economics.

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Macklem’s dashboard

The July Labour Force Survey was a reporter’s nightmare. There was no obvious way to frame it. Good? Bad? You could have gone with either. We typists dislike coin flips. It means there is a 50 per cent chance someone will yell at us for getting the story wrong.

Statistics Canada reported on Aug. 6 that employers added some 94,000 last month, an outstanding result in normal times.

But these aren’t normal times. Most of the professional forecasters on Bay Street had advised their clients to expect a number closer to 150,000. They assumed the end of the third wave of COVID-19 infections would bring another off-the-charts reading. (The economy created more than 230,000 positions in June.) It was a pretty big miss, so the headline number was actually a disappointment for some people.

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The potential for misdirection by the top-line data is why Bank of Canada Governor Tiff Macklemsaid he will be watching more indicators than usual to get a handle on where the economy is headed. Statistics Canada reported that the unemployment rate dropped to 7.5 per cent last month from 7.8 per cent in June. Pre-COVID, that would have been a good indicator to assess the trajectory of interest-rate policy. But these days, Macklem cares at least as much about the employment rate, which measures the percentage of the entire population that is employed. That number edged up to 60.3 per cent from 60.1 per cent the previous month, but was still well short of its pre-pandemic level of about 62 per cent.

Macklem also is watching the “underutilization rate,” which Statistics Canada calculates by combining the number of job searchers with its tally of people who are working less than half of their usual hours; who say they would like to work but have stopped looking; and who are temporarily laid off. That figure dropped to 14.4 per cent in July, the lowest since the pandemic began. Alas, the underutilization rate was only 11.4 per cent in February 2020. We’re still a long way from home.

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Statistics Canada counted 18.9 million workers in July, 246,400 fewer than in February 2020.

But the Bank of Canada reckons the real gap is wider than that. Macklem said in July that adjusted for population growth, the economy would need to create another 550,000 jobs — more than were generated in all of 2019 — before he would be satisfied that the recovery was complete. That suggests the central bank intends to keep plenty of stimulus in the system at least until employment rises to 19.3 million, which is 2.1 per cent higher the current level.

But Macklem’s definition of recovery is more complex than that. The governor has repeatedly expressed his desire to get everyone back to where they were before the pandemic. That’s why he’s digging deeper than the headline numbers.

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One of the metrics that the central bank is watching is youth unemployment. The chart below tracks the rate of change in employment of young men, young women, and older workers since the start of the pandemic. Young men have caught up with the majority of the working population, but young women continue to feel the brunt of the COVID-19 crisis.

Leah Nord of the Canadian Chamber of Commercetold the Financial Post’s Bianca Bharti that she’s worried that hiring slowed in July because employees abandoned industries such as hospitality and tourism during the lockdown. Brendon Bernard, an economist at Indeed, a digital hiring platform, tweeted that a big drop in temporary employment suggests the “quick wins” could be over. In other words, the remaining climb to pre-pandemic conditions could be harder than it looks.

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Here’s one of our favourite charts. It tracks the rate of change in employment in four wage brackets and shows that the highest earners have had a pretty good crisis, while those who make $20 per hour of less continue to languish. The chart is a snapshot of how the pandemic has exacerbated wealth inequality and a graphic demonstration of why policy-makers are putting economic growth ahead of worries about inflation.

Child care cometh

Prime Minister Justin Trudeau and Quebec Premier François Legault announced on Aug. 5 that they had agreed on a no-strings-attached transfer of $6 billion over five years to Quebec City from Ottawa under the auspices of Trudeau’s $30-billion effort to cajole the provinces and territories into providing child care for $10 per day. Six provinces have signed up since Finance Minister Chyrstia Freeland announced the program in her April budget.

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The holdouts: Alberta, Saskatchewan, Manitoba, the Northwest Territories, Nunavut, Ontario and New Brunswick. There are a lot of Conservative governments in that group, so it’s possible that politics are getting in the way of a program that would increase labour participation rates, boost the wages of early-childhood educators, stoke construction by expanding daycare spaces, and strengthen the odds that children are properly stimulated at perhaps the most important stage of human development.

Rebecca Schulz, Alberta’s minister of children’s services, grumbled that her province had asked for the deal that Quebec got and was denied. The difference, of course, is that Quebec has offered heavily subsidized child care since the late 1990s and parents there already pay less than Trudeau’s $10-per-day target. Alberta has no such system in place and its unsteady politics provide little confidence that its leaders could be trusted to deploy a big transfer as Parliament intended when it approved the budget bill.

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There’s reason to think some of the political opposition is performative. Millions of voters who were forced to work from home during the pandemic while also taking care of their children now see daycare centres as economic infrastructure that is as important as roads and ports. The evidence that affordable child care strengthens the economy is also indisputable. As the chart below shows, Quebec was a laggard when it introduced its program 25 years ago. Its participation rates are now the highest in the country. The broader economy will be stronger in the years ahead now that more provinces are trying to catch up.

Export, import

Exports remain a tailwind. Statistics Canada reported Aug. 5 that companies shipped goods worth $53.8 billion in June, the most ever. A lot of that is the result of surging commodity prices, but the companies reaping the windfall profits don’t care, and neither does the macroeconomy: it’s all money that is coming out of the pockets of foreigners that can be put to use building Canada’s wealth. 

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Hopefully exporters are taking advantage of their good fortune to invest in their companies so they will be in a position to take even greater advantage of opportunities in the future. Business  investment has disappointed for years, as the collapse of the oil and gas industry exposed how little other industries were spending to boost their productivity.

A proxy for business investment is imports of industrial machinery and equipment because much of the cutting-edge technology needed to power a modern factory is manufactured abroad. Imports of such things climbed to $16.9 billion in the second quarter, a 2.5-per-cent increase from the previous quarter and the most since the third quarter of 2019. If history is a guide, business investment will follow. 

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