The lead-up to Thursday’s release of Canadian March employment figures has been a gruesome guessing game for forecasters. How bad will the job carnage be? Half a million? A million? More?
Two things are certain. The number (released by Statistics Canada at 8:30 a.m. ET) will be huge. It will also be largely irrelevant. What will matter much more in the economic shock from COVID-19 are not the gory yet clearly temporary job losses inflicted by very rational decisions to close workplaces to save lives, but how the labour market that emerges is altered by the experience.
The “huge” part doesn’t require an economics degree, just a basic awareness of the outside world and a third-grader’s grasp of arithmetic. We know, for example, that 2.2 million Canadians worked in retail in February, and that 1.2 million worked in hotels and restaurants; that’s 3.4 million workers in sectors that have been largely closed by government mandate. While that hadn’t all happened by the time period that Statistics Canada is using in this survey – the week of March 15-21 – we also know from government data that more than 900,000 people filed for unemployment benefits that week. Employment insurance filings do not equate to Statscan employment estimates, and there has certainly been hiring in areas that have seen demand surge during the crisis (think grocery stores, home delivery services or, say, government departments processing benefit claims). But there’s no doubt that the March job losses will be bigger – probably vastly so – than the worst month of the 2008-09 financial crisis.
Comparisons with that deep recession – and, indeed, with the Great Depression of the 1930s – are inevitable. They’re also false. This downturn looks nothing like either of those.
“It’s not a very good comparison," said Ben Bernanke, the former chairman of the U.S. Federal Reserve, in an online discussion this week held by the Brookings Institution, a Washington think tank. "This is more like a natural disaster.”
Consider what happens to jobs in the affected region of, say, a hurricane. Workers stop going to work, as businesses close, evacuations are ordered, residents take cover in their basements. There is an acute, perhaps even a near-total, loss of employment. But the storm passes, power is restored and everyone goes back to work.
The disruption that we are experiencing now looks to be much longer than even the worst natural disasters, yet the bulk of it is, similarly, temporary in nature. These job declines, as horrific as they will be – and as jarring as they are to the individuals and families hit by them – won’t last. Once businesses are allowed to reopen, most jobs will return as rapidly as they left – delivering a similar statistical mirage in the opposite direction.
What will very much matter when that reversal comes is where the extended shutdown has left its scars on the labour market. This labour recovery will likely be very uneven.
In a report Wednesday, Canadian Imperial Bank of Commerce economists Benjamin Tal and Taylor Rochwerg estimated that only about one-fifth of the labour force works in sectors that they believe will be in high demand as the crisis winds down. While some are in relatively high-income professions (specifically, the health sector), many will be food-service and farm workers where wages are low; over all, incomes in this high-demand group are below average. A skewing of the labour market toward lower-paying jobs would have a lingering drag on overall wage growth – which would temper a recovery in consumption.
At the other end, there are businesses that simply won’t survive this shutdown – particularly in sectors, such as travel and restaurants, where the closings and operating limitations may extend longer amid continued concerns about keeping COVID-19 contained. While the CIBC economists believe that the jobs most at risk here are among the lowest-income in the economy, the losses due to business failures nevertheless would signal lost economic capacity – another element that would hold back the recovery.
Meanwhile, even an apparent solid rebound in employment could mask a highly inefficient engagement of labour in the recovery – akin to the underemployment that was prevalent after the financial crisis. There’s a good chance that many workers will return, at least initially, to reduced hours, as slowdowns and disruptions will likely linger in many sectors. Other workers, in a hurry to secure incomes, will seek jobs in sectors where the labour demand will be stronger, but which will underutilize their skills. The result will dampen productivity and income growth.
Minimizing these hangover effects will depend significantly on maintaining existing employer-employee relationships over the temporary shutdowns. The federal government’s aid package is very much designed with this in mind – unlocking credit to keep businesses afloat, while subsidizing wages for workers who are kept on and supporting those who have been laid off.
But if the COVID-19 economic idling extends much beyond three months, economists say, those worker-employer ties will become hard to sustain. The damage to the labour market could move from spectacular statistical swings to an ingrained, grim reality.
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