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The percentage of Canadians who have been without work at least a year (the definition of long-term unemployment) highlights a blight that remains in the post-crisis era and underscores a skills mismatch in the labour market.Luke MacGregor/Reuters

Almost 175,000 Canadians are watching the economic recovery from the sidelines.

While Canada's labour market has rebounded sharply from the depths of the recession, the number of long-term unemployed has refused to budge, the Organization for Economic Co-operation and Development has found.

The percentage of Canadians who have been without work at least a year (the definition of long-term unemployment) highlights a blight that remains in the post-crisis era and underscores a skills mismatch in the labour market.

According to the latest reading by Statistics Canada, unemployment held at 7.1 per cent in June, with about 1.35 million people out of work.

In a new forecast on Tuesday, the OECD projects that Canada's jobless rate will ease further, to 6.7 per cent by the end of next year – still somewhat above the 6.1-per-cent level before the recession.

Those hit hardest in the slump were young people and workers with low skills, who are suffering unemployment levels of 13.8 per cent. That compares with the 6.3-per-cent jobless level among those with medium skills (those who graduated from high school but went no further) and the 5.4 per cent for highly skilled employees (those who have at least a bachelor's degree).

But the number of long-term unemployed, who represented about 174,000 of the 1.35 million unemployed in the first quarter of this year, has continued to drift up, showing no signs of receding to the pre-recession figure of 78,000 in the last quarter of 2007.

"The number of short-term unemployed grew rapidly early in the recession, when many workers were laid off, and then receded as workers either found jobs in the recovering labour market or fell into long-term unemployment," the Paris-based OECD stated in its report. "By contrast, the number of long-term unemployed has yet to decline. A possible reason … is that employers recruiting new workers often prefer to hire new labour-market entrants and the short-term unemployed."

A skills mismatch in the labour market caused by the shifting composition of the Canadian economy has also contributed to the climb in long-term unemployment rates, said Avery Shenfield, chief economist at CIBC World Markets Inc.

"We've had significant growth in the energy sector and a longer-term downtrend in factory employment and you'd expect then that if people have to move industries and regions to gain employment that there's going to be more significant bouts of long-term unemployment. But also generally the softness in the economy has made it more difficult for those leaving school to find their first job," Mr. Shenfield said.

"Frankly, there hasn't been in total a brisk enough recovery to generate the jobs needed. So we've had some bouts of good employment growth, but over all this has not been a strong global economy and it has not been that strong a Canadian economy by historic standards," he said.

"We need to encourage more labour mobility, including moving to where the jobs are and retraining for the kind of jobs that are opening up."

The OECD called on governments to target the long-term unemployed with help to find jobs or be retrained.

"The outlook argues that it is especially important to improve labour-market outcomes of these groups in preparation for the retirement of the large baby-boom cohort from the labour market, since this demographic transition could otherwise weaken the economic outlook," it said.

"Canada should also reduce barriers to geographical and occupational mobility – for example, by promoting greater cross-provincial recognition of vocational qualifications."

About one-half of Canadian displaced workers are re-employed within one year of losing their jobs, according to the OECD, and about 60 per cent of displaced workers who become re-employed show "considerable flexibility," with 60 per cent changing occupations.

On an individual level, long-term unemployment can lead to deteriorating mental health as workers can see their skills become out of date fairly rapidly, said Paul Swaim, an economist in the OECD's employment analysis and policy division.

"When people are out of work a long time, they just become more and more disconnected from the labour market. So we can see higher unemployment going forward even if over all the economy seems to be functioning really well," he said. "There is the hardship of the people affected immediately, but also the whole labour market functions less well if you have a lot of people really on the fringes of the labour market."

Mr. Shenfield believes that there is hope for the long-term unemployment rate to ease as the global economic recovery continues. "The hope is that if the U.S. economy picks up, we'll do better on some of the export industries that have to this point lagged behind. But ultimately we're going to need labour to adjust to the type of skills and locations that match up better with employment growth in Canada."