Amidst all the talk about how the Canadian economy is recovering, the one segment that continues to underperform is the labor market. Before the Federal government removes some or all of the COVID-related supports to the private sector, it is vital that the labor market return to, at least, its pre-COVID state of health. As the Bank of Canada stated in its most recent report on the state of the Canadian economy, (October MPR)

‘ the uneven nature of the COVID-19 shock has emphasized how diverse and segmented the labor market is—and the need to look at a broad range of measures to assess labor market health. One way to do this is to examine indicators along three different dimensions: overall labor market conditions, inclusiveness and job characteristics. Results from this approach indicate that significant progress has been made since the depths of the downturn in April 2020, though the recovery remains incomplete.’

(This chart illustrates the extent to which labor market conditions have recovered. The recovery is shown through progress bars, where the current value of each measure, depicted by a blue circle, is compared with both its trough during the crisis and a pre-pandemic benchmark value (2019 monthly average). Long-term unemployed people are those who have been unemployed for 27 weeks or more. For more detail on wage growth measures, see Chart 8. Data for all series are from Statistics Canada’s Labour Force Survey (LFS) unless otherwise noted. SEPH stands for Survey of Employment, Payrolls, and Hours. Sources: Statistics Canada and Bank of Canada calculations Last observations: LFS, September 2021; SEPH, July 2021)

The accompanying chart compares a variety of labor market measures and reveals some excellent progress. However, at the same time, there are several key indicators that continue weigh heavily on economic performance. First, the good news. The participation rate is back to its pre-pandemic level. Significantly, the groups that suffered at the depths of 2020’s recession, youth and women, have made an excellent recovery, returning to pre-pandemic unemployment rates. Also, hours worked now at pre-pandemic levels, a sign that businesses are returning to more normal operations.

The big disappointments are found in two vital measurements. Long-term unemployment rates continue to worsen, and that does not bode well for thousands of unemployed who may never be able to return to work. The longer one remains unemployed, the more difficult it is to find meaningful employment. 

The other significant shortfall is the anemic growth in wages which continues to hold back economic growth. Despite the improvement in employment, many workers have yet to record the number of hours they need to maintain previous income levels. Wage and income growth, so far, has fallen well short of gains achieved in 2019. Real income growth has turned negative. The pandemic has exacerbated income inequality in the most dramatic way. Concurrently, we read all about the shortages of workers in many industries, including food and beverage and selected retail outlets. It is by no means a stretch of the imagination to conclude that the fall in real wages is connected to these shortages.Labor economists cannot recall a period in which there has been so much dislocation in the workforce, where jobs go begging at the same time as thousands remain without jobs.