Jobless rate to hit 10%, OECD says

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The Harper government's stimulus package should have a big impact on stemming job losses but unemployment in Canada will still reach almost 10 per cent by next year, the OECD said Wednesday.

If forecasts are accurate, the recession's impact on the labour market could be more severe than the last recession of the early 1990s, the Organization for Economic Co-Operation and Development warned in its annual employment outlook.

"Even if the unemployment rate has already peaked, Canada's labour market typically takes a long time to recover from recessions," the 30-member group said in the report.

In the early 1990s recession, the unemployment rate peaked in early 1993, but did not drop below its pre-recession level again until almost eight years later, it noted.

Other indicators released Wednesday suggest the pace of job losses may be easing. The Conference Board of Canada's new help-wanted index showed an increase in new online job postings in August, a sign it says that "the job market is near bottom."

The index peaked in August, 2008 before sliding 30 per cent to a low in July of this year. Gains in online job openings in June and August show the pace of erosion is easing, it said.

Canada's unemployment rate now stands at 8.7 per cent, and almost half a million full-time jobs have been lost since last October's peak.

That rate is almost certain to climb. Royal Bank of Canada chief economist Craig Wright said Wednesday he expects the jobless rate to hit 10 per cent later this year and only drop to 9.7 per cent by the end of next year.

In the recession of the early 1990s, which ran for four quarters ending in the first quarter of 1991, the jobless rate spiked to 12 per cent. But employment continued to fall until the third quarter of 1992, leading to what was known as the "jobless recovery."

Job cuts have been particularly acute among Canadian working-aged men, the OECD report said, "reflecting a high concentration of job losses in traditionally male-dominated industries such as manufacturing and construction." For both men and women, the decline in full-time work "has been somewhat offset by gains in part-time employment."

It singled out young people as being particularly vulnerable. Across the OECD countries, youth employment is more than twice as sensitive to business cycle fluctuations as that of prime-aged workers. In Canada, student unemployment hit 16.4 last month - the highest rate since comparable data began in 1977.

Still, the organization said, the Conservative government's fiscal package should have a "relatively large effect" in curbing job cuts.

It estimated that the spending package will reduce job losses by between 0.7 per cent and 1.1 per cent.

"This is both because the size of the fiscal package was reasonably large (fifth-largest in the OECD as a percentage of GDP) and because employment in Canada is relatively responsive to stimuli such as tax cuts and public expenditure," the group said.

OECD Secretary-General Angel Gurría urged all governments to act quickly and decisively to prevent the recession turning into a long-term unemployment crisis.

"Employment is the bottom line of the current crisis," he said. "It is essential that governments focus on helping job seekers in the months to come."

He also argued for a co-ordinated policy response to the crisis to stop people from falling into "the trap of long-term unemployment."

The OECD jobless rate has already reached a post-war record of 8.5 per cent, which equates to more than 15 million people joining the ranks of the unemployed since the end of 2007.

If the recovery fails to gain momentum, that rate could hit a new post-war high, with 57 million people out of work.

Some of its suggestions to help staunch the job losses are:

* Target young people, who are particularly at risk of falling into long-term unemployment.

* Boost spending on labour market policies such as job search help and training.

* Reinforce social safety nets so that the unemployed don't fall into poverty.

* Foster skills to help people qualify for emerging positions, such as green jobs.