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Big numbers behind a small gain in jobs Add to ...

Stephen Gordon is a professor of economics at Laval University in Quebec City and a fellow of the Centre interuniversitaire sur le risque, les politiques économiques et l'emploi (CIRPÉE). He also maintains the economics blog Worthwhile Canadian Initiative.

Today's release of the Labour Force Survey reports that employment in Canada rose by 3,000 last month. Such a small change - an increase of only 0.02 per cent from September - may lead one to conclude that not much happened in the labour market during October, but this number underestimates the rate of job creation by a wide margin. The LFS provides estimates for net changes in employment, which are dwarfed by the size of the gross flows in and out of employment.

The dynamics of the labour market are simple enough: the net change in employment is equal to the number of new hires less the number of job separations. Separations take two main forms: voluntary quits and involuntary layoffs or discharges. During work on his doctoral thesis at Queen's University, Stephen Tapp - now at the Parliamentary Budget Office - assembled data on gross employment flows for the period 1988-2006.

In an average month during these 18 years, there were 245,000 hires, and 227,000 separations, for an average net gain of about 18,000 jobs every month. These net changes are an order of magnitude smaller than the gross flows in and out of employment. (I would have liked to update these numbers to include the recent recession, but Statistics Canada no longer collects the necessary data.)

Looking at gross employment flows provides a surprising insight into just what happens in the labour market during recessions. Contrary to what one might expect, employment losses are not caused by an increase in the rate of separations - the rise in layoffs is offset by a reduction in the rate at which workers quit their jobs. Instead, the fall in net employment is brought about by a reduction in the rate at which new jobs are created. In the United States, data from the Job Opening and Labor Turnover Survey show that new hires fell from 5m to 4m per month when the recession hit. One of the more discouraging aspects of the U..S recovery is that the fall in employment was not halted by increased hiring, but by a fall in quit rates. Labour market activity - as measured by flows in and out of employment - remains well below pre-recession levels.

This perspective on labour market dynamics also provides some useful context for files in which job losses - real and hypothetical - are discussed. In an economy where a quarter of a million jobs are created and lost each month, the prospect of losing a certain number of jobs - especially if these losses are spread out over time - may be less important than making sure that the conditions are in place for firms to sustain a healthy rate of job creation.

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