2. The Canadian labour market: setting the context

2.1. Composition of the Canadian labour force

The Canadian labour force (as defined by Statistics Canada) consists of the civilian non-institutional population 15 years of age and over who are employed or unemployed. Employed individuals are those who have a job or a business and the unemployed are without work, are available to work, and are actively seeking work. According to the Labour Force Survey (LFS), the total size of the Canadian labour force was 18.7 million in 2011. Canadian-born individuals accounted for 14.4 million (77.1%) of the total and immigrants accounted for close to 4 million (21.2%). The remaining 300,000 (1.7%) are “non-landed immigrants” who are in the labour force. The non-landed immigrant number includes temporary foreign workers, foreign students, refugee claimants who have valid work permits and others not included in the Canadian-born or landed immigrant categories.^{Footnote 2} Figure 1 displays the composition of the Canadian labour force for the Canadian-born and immigrant populations. Within the immigrant population, the majority of labour force participants are established immigrants – those who have been landed for more than 10 years. Very recent (landed for 5 years or less) and recent immigrants (landed between 5 and 10 years) make up considerably smaller proportions.

Figure 1: Composition of the Canadian labour force, 2011

Text version: Composition of the Canadian labour force, 2011

Table 1: Labour force composition by age and immigrant status, 2011

Source: Labour Force Survey, 2011

2.2. Recent labour market conditions

The world economic challenges over the past several years have had a detrimental impact on the Canadian economy and the labour market. At the outset of the global slowdown, many forecasters correctly argued that Canada was in a solid position to weather the developing challenges; however, structural performance issues in the United States, our major trading partner, have nonetheless dampened Canada’s economic performance. This has had commensurate impacts on the domestic labour market.

Examining the previous two recessions Canada has faced is instructive. Previous recessions – specifically starting in 1981 and 1990 – exhibited differences in labour-market performance entering each downturn and differences during the respective recovery periods. These two historical examples can help us understand the complexity of a recession in terms of depth, duration, and recovery.

2.3. Comparison to previous recessions – employment and unemployment rates

The latest employment and unemployment rates from the LFS indicate that this slowdown was not as severe as the 1981 and 1990 recessions. However, this kind of analysis is highly reliant on the point chosen as the starting date of the recessions. For this analysis, the pre-recession peaks for employment rates and the pre-recession troughs for unemployment rates are used. As a result, February 2008 is the peak for the employment rate at 63.9% and January 2008 is the trough for the unemployment rate at 5.8%.

Figure 2: Employment rates – Canada, monthly

Text version: Employment rates – Canada, monthly

Figure 3: Unemployment rates – Canada, monthly

Text version: Unemployment rates – Canada, monthly

During the 1981 recession, a quick deterioration in the labour market led to a simultaneous rise in the unemployment rate and a fall in the employment rate. As shown in Figures 2 and 3, the unemployment rate rose sharply by 5% and the employment rate declined substantially by 3% during the first 12 months of the 1981 recession. The 12-month period which followed was considerably better and a recovery in the Canadian labour market was well rooted 24 months after the start of the recession.

The situation encountered during the 1990s recession was notably different and, while the initial impact on the labour market was not as severe as the 1981 recession, many characterized the mid-1990s as a “jobless” recovery. This is evident in both the unemployment and employment rates which after 4 years from the start of the 1990s slump had not returned to pre-recessionary levels.

As illustrated by Figures 2 and 3, labour-market indicators point to relatively milder impacts during the 2008/09 recession. The rise in the unemployment rate and the decline in the employment rate have not been as harsh as in the previous two recessions. Further, the overall level of both the employment and unemployment rates indicate superior labour-market conditions entering the downturn as compared to the previous two recessions.

Despite the relatively better labour market situation during the most recent economic downturn, recessions have different impacts on regions, sectors and groups participating in the labour market. Immigrants have often been identified as a vulnerable group that is more severely impacted by downturns and experiences significant difficulty re-entering employment after layoffs.^{Footnote 3} This is an important consideration given current economic circumstances.

It appears that longer-term labour market requirements will be largely unaffected by the recession in 2008/09. Instead, the underlying trends driven by population aging (including slowing labour force growth and emerging skill shortages in some occupations and regions) will continue to be the key factor impacting labour supply in the long term.

2.4. The evolution of the Canadian labour market since the 1980s

The recent evolution of the Canadian labour market can be divided into three distinct sub-periods. The first period, from the end of the 1980s to the early 1990s, was characterized by weak conditions as a result of an economic downturn. This was a period when monetary policy was deliberately slowing the economy to reduce inflationary pressures. These conditions led to a decline in employment growth, with overall job losses in 1991. The unemployment rate increased substantially to reach an average annual rate of 11.4% by 1993.

The second period, from 1993 to the late 1990s, was characterized by a slow recovery from the early 1990s downturn. Job creation was slow and the participation rate depressed. Job creation finally picked up and the unemployment rate declined to reach 6.8% by 2000.

Finally, at the beginning of the 2000s, the combination of a strong labour market and a high participation rate placed the demand and supply of labour in relative balance and, as a result, the unemployment rate hovered slightly above 7% for the first half of the decade. Some tightening took place during in the final half of the decade pushing the unemployment rate down to 6% before another recession took root in 2009.

Figure 4: Canadian unemployment rate, 1980-2011

Text version: Canadian unemployment rate, 1980-2011

Focusing more closely on the final period, excluding the recession in 2008/9, employment growth averaged around 2% while the labour force expanded at a slower rate – 1.8% annually. Consequently, the unemployment rate declined for much of the 2000s and this is likely to be a continuing trend in the coming years as many baby boomers retire from the labour force, leading to relatively weaker labour force growth.

Increases in the number of retirements, stemming from a larger number of baby boomers reaching retirement age, will occur during the next 10 years. However, labour-market behaviour can be hard to predict and this has become increasingly apparent over the past 15 years by examining the upward movements in older workers participation rates described in Figure 5. Previous forecasts had anticipated that the Canadian labour market would be in the midst of greater numbers of retirements during the first decade of the 2000s, but forecasters have had a hard time capturing the upward movements in older worker participation rates.

Figure 5: Older worker participation rates, 1976-2011

Text version: Figure 5: Older worker participation rates, 1976-2011

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