For decades, a low unemployment rate has been cause for political bragging, an indication that voters have jobs – and that politicians will get to keep theirs.
That continues to be true today, even as the fundamentals of the labour market are starting to shift. This week, Ahmed Hussen, federal Minister of Housing, Diversity and Inclusion, tweeted out his happy thoughts about the latest unemployment numbers: “#DYK that [Canada‘s] labour market created 21,000 jobs in September alone? Our unemployment rate is continuing to fall and more and more Canadians are getting back into the workforce.”
Mr. Hussen may want to go back and read Statistics Canada’s latest Labour Force Survey a little more closely. That monthly report is anything but brag-worthy.
It’s true that the unemployment rate edged down, falling to 5.2 per cent in September from 5.4 per cent in August. And it is correct to say that 21,000 net jobs were created.
So where’s the cloud to those silver linings, you might ask? For one thing, only the public sector saw significant job gains in September, with an increase of 35,000 positions. Private-sector employment barely rose, and the number of self-employed fell. Taken together, private-sector employment fell while the public payroll increased. That hardly seems like cause for celebration.
Still, those trends have zigged up and down over the past few months. More disturbing is an emerging longer-term trend that Statscan flagged: the shrinking of the labour force, particularly among men over 55. Over all, the labour force dropped by 20,000 to 20.62 million, with over-55 men accounting for 60 per cent of that decrease.
Statscan chalked up the drop in the September unemployment rate to fewer people searching for work – a fact that should be cause for deep concern on the part of federal ministers, not high-fiving tweets. Over the past two decades, the agency noted, labour force participation rates have fallen from 67.1 per cent in September, 2002, to 64.7 per cent this past month. (The labour force participation rates measures the proportion of the working-age population, age 15 to 64, that is either employed or unemployed.)
At a minimum, Mr. Hussen’s tweet betrays a lack of awareness about the dangers of a contracting labour force; he wrote that “more and more Canadians are getting into the workforce.” The word “workforce” isn’t one that Statscan uses, so the minister’s message could be (generously) read as referring to employment, which did increase in September. Less generously, he is misstating the contraction in the labour force. His office did not respond to a query as to his exact meaning.
In its fiscal and economic outlook released this week, the Parliamentary Budget Officer is forecasting a continued decrease in the national participation rate, estimating that it will fall every year and hit 63.8 per cent by 2027.
The economic consequences of the labour pool shrinking are clear. Today’s widespread labour shortages are just a taste of things to come. Upward pressure on wages and curtailed hours of operation are short-term consequences (or benefits, if you happen to be a lower-income worker). Higher business spending on automation and other efficiencies is a possible, although far from certain, upside.
Without such investments, however, the size of the labour force could very well become a ceiling on economic growth.
The political consequences may be less obvious, but will be just as profound as Canada moves away from decades of abundant workers and scarce jobs, to a future of abundant jobs and scarce workers.
In that future, an ultra-low unemployment rate won’t be a harbinger of good times. Rather, it will be a sign that governments and businesses have failed to take the steps necessary to break through that ceiling. And that will be nothing to brag about.
Taxing questions
Responding to an item in last week’s newsletter about the political sparring over employment insurance contribution rates, one online reader made the point that a broader accounting of payroll deductions, including those for the Canada Pension Plan, would give a more accurate picture.
To recap: EI contribution rates are lower this year than in 2015 (the last year of the Harper government), but that is largely due to policy decisions made by the Conservatives and then enacted by the Liberals. However, if that broader accounting is used, the math tilts a bit.
In 2015, the EI contribution rate was 1.88 per cent. For CPP, the employee contribution rate was 4.95 per cent, unchanged since 2003. So, someone earning up to the maximum insurable earnings under EI ($49,500 in 2015) would have paid a combined payroll tax of 6.83 per cent of earnings at the margin. There is a fixed $3,500 exemption for CPP, so the actual rate at $49,500 of earnings would be 6.48 per cent for the employee, with additional contributions by the employer.
But CPP contribution rates started to rise in 2019 as part of a long-term move to enhance benefits. EI contribution rates dipped to 1.58 per cent in 2022, while CPP contribution rates jumped to 5.7 per cent. That means that the marginal rate for someone earning $49,500 in 2022 actually rose a bit, to 7.28 per cent.
Accounting for the CPP basic exemption, the combined contribution rate was also higher than in 2015, at 6.88 per cent. (Again, employer contributions would add to that percentage.)
So, the reader is correct: with both deductions accounted for, employees are paying out more in 2022 than in 2016.
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Tipping point: Electronic tips paid out to servers are pensionable wages, and employers must include those amounts when calculating their Canada Pension Plan contributions, the Federal Court of Appeal has ruled in upholding a decision by the Tax Court of Canada. At issue were payments to servers by Halifax restaurant Ristorante a Mano Ltd., called due-backs. That was the net amount of electronic tips paid after accounting for service charges, payments to back-room staff and cash tips that servers had received.
Both courts ruled that those payments fit the description of pensionable wages, saying that even though the payments originated from customers, servers would not have received them but for being employees.
Follow me on Twitter, @PatrickBrethour or ask your Taxing Question here.
Patrick Brethour