Canada’s labour market is weaker than the headline unemployment number suggests, new analysis from Toronto-Dominion Bank shows.
The bank has developed a new index of labour market indicators based on 14 variables including hours worked, self-employment, wage trends and temp work.
That gauge – based partly on Bank of Canada measures – shows the country’s jobs market “is currently experiencing more weakness than is implied by looking at the headline unemployment rate alone,” and has been for nearly two years, noted Randall Bartlett, TD senior economist.
This weakness is driven by “elevated levels of labour underutilization, involuntary part-time employment, and long-term unemployment.”
The index has launched as volatility in monthly labour force survey readings have made it difficult to assess underlying trends. Longer-term averages show slow job growth in Canada with an unemployment rate that’s edged down. Canada’s jobless rate is currently 6.8 per cent.
The unemployment rate is one of the most closely watched gauges of the health of the Canadian economy. But it doesn’t tell the whole story.
Since the late 1990s, its broader labour market indicator (LMI) has generally tracked Canada’s unemployment rate. The two measures began to diverge last year though, with the LMI rising and the unemployment rate ebbing. As a result, the spread between these two is now the widest it has been since the 2008-2009 recession.
This finding “supports the Bank of Canada’s view that significant slack in the Canadian labour market persists, and adds further weight to its continued accommodative policy stance,” TD said.
The new index, designed on a scale to be comparable with the unemployment rate, is similar (though not the exact same) to measures developed by the Bank of Canada and the U.S. Federal Reserve. These types of measures aim to help analyze the degree of slack in the jobs market and whether labour market conditions are changing, with the hope they’ll add clarity to what has been a complicated picture.
The Bank of Canada has developed a labour market indicator, and first introduced it in May, underscoring its desire to look at a range of measures in addition to the jobless rate. But the central bank told The Globe and Mail last month that – unlike the Fed – it doesn’t plan to publicly release its LMI on a regular basis.
TD’s analysis, released Thursday, found wages are tracking inflation, though average weekly hours worked, on a seasonally adjusted basis, have “been falling over time,” and averaged just below 34 hours a week this year.
“Some weakness” in private-sector hiring has persisted, it said, following its initial strength in the early part of the recovery.
The share of long-term unemployed in Canada has stayed high since the recession. And the long-term unemployed “look to be exhausting their EI benefits,” with the benefits-to-unemployed ratio reaching a near historic low of about 37 per cent in September.
TD says its measure will be released on an “ad hoc basis, when relevant” though if there is demand, the bank would consider publishing it on a regular basis.
CIBC also produces an employment quality index based on indicators such as self employment, part-time rates and wages.