The Canadian economy continues to create jobs at a fairly steady pace, but questions are mounting over the quality of those new positions.
Several reports have concluded that the country's job market is not as strong as it looks and now a study from Canadian Imperial Bank of Commerce paints an even worse picture. According to the bank's analysis, job quality has fallen to its lowest level in more than two decades. A CIBC index that measures 25 years worth of data on part-time versus full-time work, paid versus self-employment and compensation trends, has fallen to its lowest level on record.
The Bank of Canada's new measure of labour market indicators also showed "slack" in the jobs market and it has noted "ongoing labour market challenges" such as a low participation rate among core-aged Canadians. Another report from the Toronto-Dominion Bank last month pointed to more weakness than the unemployment rate suggests.
The trend has implications for the broader economy. A lack of hours along with a prevalence of lower-wage jobs and self-employment underscore why many households are having difficulty shoring up savings and why consumer spending may taper off this year.
As household finances get squeezed, the risk is that debt – already near record levels – could grow further, leaving people more vulnerable to any type of economic shock."After every recession, [job quality] goes down, but it doesn't fully catch up. So there is almost a permanent loss every time that there is a shock," said Benjamin Tal, CIBC's deputy chief economist. This is why the decline in employment quality "is more structural than cyclical."
One notable shift is that a smaller portion of the labour market now has higher bargaining power, or high-paying jobs, while a larger segment has lower bargaining power, he said. "This is the main reason why the income gap is rising, which I believe is the number one economic, social issue facing the country in this decade."
The CIBC index tracks three components, all of which are showing a deterioration. The first indicated that the number of part-time positions has risen "much faster" than that of full-time jobs since the 1980s. (Over the past year, though, some of this has reversed as full-time jobs rose faster). Self-employment is another measure, as economists tend to view it as less stable and, on average, lower paying than salaried employment. The number of self-employed workers has been on a "steeper incline" over the past 25 years, and in the past year grew four times faster than the number of paid employees, the CIBC report said.
On compensation, the bank said low-paying full-time jobs have risen faster than mid-paying jobs over much of the past two decades, which in turn have risen more quickly than high-paying jobs. And in the past year "the job-creation gap between low- and high-paying jobs has widened," with low-wage full-time paid positions rising at twice the pace of high-paying jobs.
The retail sector, which tends to be much lower-paying, is the largest source of employment by sector in Canada. It's also a industry that may soon start to see job losses as Target pulls out of Canada and other retailers such as Sony, Smart Set and Mexx close shop amid fierce competition.
Definitions of job quality – and what constitutes "precarious" work – vary. Wilfred Laurier University economics professor Tammy Schirle cautioned against relying too heavily on assumptions that part-time work is necessarily of poorer quality than full-time employment.
Dr. Schirle noted that employers who offer flexible work schedules are often praised for accommodating work-life balance for families.
"We rally behind startups, innovators and the ambitious small-business owner, and then say the work they've created for themselves is substandard?" she said in an interview Thursday. "Part-time and self-employment often reflect poor-quality jobs, as does much of full-time employment, but that is not always the case. They are certainly important indicators of what is happening in our labour market, but I'm reluctant to use these as key indicators of job quality."
It has been a difficult stretch for some job seekers. Going from laid off, to underemployed, to contract work, Richard Vanderbeek, 24, is now looking for a job – again. It's something he has done four times in less than three years. He wants to start a career in customer service, but can't seem to get his foot in the door.
"I've found that even customer-service jobs, some of them would require university programs and they're still only offering minimum wage to start," said Mr. Vanderbeek, who lives in Toronto. "Even with the amount of schooling you have to have to get it, there's still no real incentive through pay."
While finding work has been difficult, finding work that pays enough, offers enough hours to offset the cost of living and provides advancement opportunities has been next to impossible. After leaving culinary school unfinished, Mr. Vanderbeek worked at a delicatessen and then a butcher. The deli downsized and eliminated his position, and after six months with the butcher, he knew he had to make a change.
"I realized that my max earnings I could make was essentially $14 an hour," Mr. Vanderbeek said. "I had to move on in order to find something that could pay me a little more down the line."
Federal Employment Minister Pierre Poilievre responded to the CIBC report's findings with a statement that said Canada's job creation record is one of the strongest in the Group of Seven.
"Given the ongoing uncertainty in the global economy, it is important that our government continue to keep taxes low for families and job creators," he said.
The report comes as Ottawa and the provinces are currently involved in negotiations over the future of training policies and employment insurance. The talks are aimed at renewing Labour Market Development Agreements worth about $2-billion a year that fund job training programs with money collected from employment insurance premiums paid for by workers and employers.
The debate is shaping up as a philosophical argument over the best way for governments to boost employment. Ontario argues the current surplus in the EI account should go toward boosting training programs for unemployed Canadians. Mr. Poilievre rejected that idea. He said the government is planning to wind down the surplus through lower EI premiums, which will lower the cost of hiring faced by employers.
In Ottawa, the federal NDP and Liberals have both indicated that concerns over income inequality will be a priority in their economic messaging heading into the October, 2015, election campaign. That has played out in the debate over the Conservative government's income-splitting tax cuts, which the opposition says will benefit high-income earners more than the middle class.
A similar debate occurred last week after the Parliamentary Budget Officer reported that the Conservative promise to double the maximum annual contribution to tax-free savings accounts would primarily benefit Canadians with high incomes.
The opposition has also criticized Conservative reforms of the EI system, which have coincided with a decline in the percentage of unemployed Canadians who qualify for the safety net program.
The portion of unemployed Canadians qualified for EI fell to about 38.6 per cent last year, compared with 46.9 per cent in 2006. The government has said its priority for the upcoming 2015 budget will be to show a return to surplus, which will allow the government to keep taxes low.
Mr. Tal, at CIBC, says the situation shows a mismatch in the labour market, where "we have many educated people are compromising on contract jobs, on self-employment jobs, low-paying jobs because they don't have the skill-set that those high-paying jobs need. And that's why their bargaining power isn't as powerful."
The solution requires a collaborative effort, he says, from governments, who shape educational and immigration policies, employers, who hire and train workers and from job seekers themselves. "We do need the young people to be a bit more practical about what they do, in terms of field of studies."