Employment Growth

Putting employment growth in context

How Canada Performs examines not only provinces’ unemployment rates but also their employment growth rates. Although these two indicators may seem like two sides of the same coin, the employment growth rate measures something somewhat different from the unemployment rate.

The unemployment rate is calculated from two other economic indicators: the total number of people who want to work and are searching for a job but do not have one, divided by the total number of people in the labour force. The unemployment rate is a useful shorthand for overall economic performance, but it obscures some aspects of the employment picture. Crucially, it measures the employment picture only among people who are looking for work. In a place like Japan, where women are less likely to enter the labour force, the result can be an exceptionally low unemployment rate even in the absence of significant job creation.

Individuals’ decisions to enter or leave the labour force do tell us something about the economy, as people are less likely to bother looking for work during very bad economic times. But labour participation decisions are also affected by other considerations, like family planning, lifestyle desires, and cultural norms. As a result, economists often like to look at raw employment growth as well, since it is a more direct measure of the economy’s performance in creating jobs.

In developed countries, employment growth has been weak since the end of the 2008–09 recession. History reveals that economic recoveries take longer after a financial crisis than after other types of crises (e.g., fiscal crises, oil shocks) for a variety of reasons. In the wake of a financial catastrophe, banks curtail lending growth as they work at getting their balance sheets back in order. At the same time, households hold back on spending in response to weak labour market conditions and in an effort to reduce debt burdens. Governments squeeze spending to lower fiscal deficits that soared as they provided fiscal stimulus to kick-start economic activity during the recession.

These broad trends were present across advanced economies in recent years to varying degrees. The good news is that the legacies of the financial crisis have abated, so employment growth has been picking up across the developed world over the last few years.

How does Canada compare with international peers?

In the last How Canada Performs economy report, which examined 2013 employment growth data, Canada had the second-best performance in the peer country group, behind only Ireland. Since then Canada has slid backwards—the country had employment growth of only 0.7 per cent in 2016. Canada’s C grade in this year’s report card reflects the fact that it posted the fourth-worst employment growth among its peers in 2016, ahead of only France, Finland, and Norway.

Canada’s economic performance was one of the best in the world in the years following the financial crisis: after 2009, Canada experienced four years of solid employment growth averaging 1.4 per cent, while the peer countries averaged 0.4 per cent employment growth. But the commodities price crash that began in 2014 has weighed heavily on the Canadian economy at the same time as peer countries have started to show signs of progress. Since 2014, annual job growth in Canada has averaged just 0.7 per cent, while the peer countries have averaged employment growth of 1.2 per cent.

How do the provinces compare with international peers?

Only three provinces had positive employment growth in 2016: British Columbia—which gets an A for its 3.2 per cent employment growth—and Ontario and Quebec—which get Cs for their 1.1 and 0.9 per cent employment growth, respectively. British Columbia and Denmark (3.2 per cent) are tied for first place overall, ahead of Germany (2.9). Ontario and Quebec’s employment growth rates, meanwhile, are comparable to countries like Japan (1.0) and Belgium (0.8).

Employment declined in all four Atlantic provinces and in all three Prairie provinces. New Brunswick scores a D, ranking just ahead of last-place peer country Norway, where employment fell by 0.1 per cent in 2016. The remaining six provinces—Manitoba, Nova Scotia, Saskatchewan, Newfoundland and Labrador, Alberta, and P.E.I.—get D– grades, with the poorest performances among all the jurisdictions.

How do the provinces perform relative to each other?

After many years of leading the country in employment growth, the commodity price crash hit Alberta’s and Saskatchewan’s economies hard. Both have been in recession, and this has clearly had a knock-on effect on their labour markets. Alberta lost 37,000 jobs in 2016, while Saskatchewan shed 5,000 jobs.

As a share of total employment, though, neither of these provinces had the worst performance in 2016: that dubious honour goes to P.E.I., where employment fell by 2.3 per cent. Atlantic Canada has been suffering badly on the employment front for several years, and 2016 was no different. Since the last How Canada Performs economy report card, which looked at 2013 data, P.E.I.’s employment growth rate has fallen from 1.5 to –2.3 per cent, New Brunswick’s has fallen from 0.4 to –0.1 per cent, and Newfoundland and Labrador’s has fallen from 0.8 to –1.5 per cent. In the region, only Nova Scotia had stronger employment growth in 2016 than in 2013, although its improvement from –1.1 per cent growth to –0.4 per cent growth simply means it is losing jobs at a slower pace than before.

The size of the Ontario and Quebec economies means that even small employment growth translates into many jobs. Ontario added 76,000 jobs in 2016 (1.1 per cent employment growth), and Quebec added 36,000 (0.9 per cent growth). Just as a commodities price crash hurts resource-based economies in the West and in Newfoundland and Labrador, it benefits the manufacturing and services-based economies of Central Canada, which use commodities as inputs for their goods and services. When global commodity prices are low, we see a shift away from the resource-based economies as the engines of Canada’s economic growth.

British Columbia’s employment growth for 2016 (3.2 per cent) stands head and shoulders above the rest of the country. Despite having one-third the population of Ontario, British Columbia added about the same number of jobs as the larger province in 2016, with 73,000 new positions created.

Why did B.C. score such a high ranking?

What was behind B.C.’s strong employment growth in 2016 given that it was a dismal year for most of the country, particularly the resource-rich provinces that usually top the rankings? Although British Columbia’s economy also relies on resources, its primary resource export is forestry products, which have not suffered the same drop in prices as metals and energy products. And although there is some oil and gas production in B.C., it is a much smaller share of the province’s economy than in neighbouring Alberta or Saskatchewan, so the falling price of oil has on balance been a boon for the province rather than a setback.

B.C. did benefit in 2016 from a booming—some would say overheating—housing market that spurred construction. It also benefited from high demand for its forestry products from the United States, which is also experiencing a housing boom. However, in the summer of 2016, the B.C. and Vancouver governments started taking steps to cool the housing sector, introducing taxes on foreign homebuyers and on vacant homes. These policies are already having an effect. A slowing domestic housing market, together with the possibility of protectionist action from the new Trump administration, means British Columbians should not expect to see their province generate quite as much employment growth in 2017.

How closely are job growth and the unemployment rate linked in Canada?

As discussed above, the employment growth rate measures something subtly different from the unemployment rate, which is why economists like to look at both. But how often do the two diverge in practice? Is rising employment not always associated with a decline in the unemployment rate?

For the most part, the two do move together. Of the seven provinces that saw a decline in employment in 2016, five saw an increase in the unemployment rate, and all three of the provinces that saw employment growth also saw a decrease in the unemployment rate.

Nova Scotia and New Brunswick had declines in both employment and their unemployment rates, however. Nova Scotia’s employment declined by 0.4 per cent in 2016, but its unemployment rate fell from 8.6 to 8.3 per cent; New Brunswick’s employment declined by 0.1 per cent, but its unemployment rate declined from 9.8 per cent to 9.5 per cent. In these cases, the decline in the unemployment rate is related to the aging of the population and the rising number of workers leaving the workforce.

On the other hand, the reverse can also happen. An economy with improving job prospects can lead previously discouraged workers to re-enter the labour force in the hopes of finding a job. An expanding labour force can put upward pressure on the unemployment rate, even if the economy is generating new jobs. This was what happened in B.C. in 2015, when employment grew by 1.2 per cent but the unemployment rate still rose from 6.1 per cent to 6.2 per cent. When the employment and unemployment rates are both rising, it is usually a sign that people are hopeful enough about the direction of the economy that they are entering the labour force in large numbers.

How do the territories rank on employment growth?

The territories all do well on this measure. Nunavut earns an A+, with higher employment growth than the top-ranking peer country, Denmark. Employment growth in Nunavut was a blistering 6.3 per cent in 2016. Both Yukon and the Northwest Territories rebounded from negative employment growth in 2015; Yukon enjoyed growth of 4.1 per cent in 2016, earning an A+, and the Northwest Territories had growth of 2.7 per cent, earning an A.

With economies that rely heavily on resource extraction, the commodity price slump will depress labour markets in the territories over the near term. In Yukon in particular, mine closures will make 2017 a difficult year. Nunavut has a brighter outlook, with several mining projects contributing to employment growth. The Northwest Territories has an outlook in between its two neighbours, with the closure of the Snap Lake diamond mine offsetting rising output at other mines.

The territories are not included in the overall rankings because data are not available for all the indicators in the economy report card. The Conference Board is, however, committed to including the territories in our analysis, and so we provide information on territorial performance when data are available, such as employment growth.

The Conference Board of Canada produces a biannual Territorial Outlook report that examines the economic and fiscal outlook for each of the territories, including output by industry, labour market conditions, and the demographic make-up of each territory. The Territorial Outlook can be accessed online through e-Library and for clients subscribing to e-Data.

Research on issues affecting the territories is also produced by the Centre for the North, a Conference Board initiative that began in 2009.

What could affect future employment growth in Canada?

Major year-to-year variation in an economy’s employment fortunes can be due to unpredictable events, like a crash in the global price of commodities, that force employers to hire or lay off significant numbers of people. But most of the jobs in an economy are carried over from year to year, and major trends and projects are often foreseeable years in advance.

The provinces with dismal grades in this report card are likely to see a turnaround. In Alberta and Saskatchewan, the recovery in the price of oil from its recent lows could help spur hiring. The U.S. government recently approved the Keystone XL pipeline, which will help relieve pipeline capacity constraints facing producers in the oil sands. It could also help bring prices for Western Canadian Select, the benchmark price for western Canadian heavy crude oil, closer to prices buyers are willing to pay for other major blends, like West Texas Intermediate. These factors could spur more investment and hiring in the energy industry. Alberta also stands to gain many jobs during the coming years as the reconstruction of Fort McMurray after the 2016 wildfires unfolds.

Likewise, there are upcoming projects that will help boost employment in Atlantic Canada. Nova Scotia stands to benefit from increased employment at shipyards building a new fleet of Arctic patrol ships. New Brunswick stands to benefit from a major hiring spree announced by the Irving Group. P.E.I. should see upticks in manufacturing and tourism.

However, Newfoundland and Labrador has a less positive outlook. That province has suffered a collapse in business investment, which bodes ill for business job creation in the future. It is also undergoing a round of fiscal austerity that will hurt household disposable income and, therefore, the fortunes of retailers of consumer goods. And the construction of the Hebron oil platform, which employed up to 3,000 people in the province in 2016, has now come to an end.

The B.C. housing market showed signs of slowing after the government took decisive action to cool this overheated sector. That will be good for families hoping to afford to live in the province, but it will slow economic growth. Ontario’s government has taken similar measures, recently announcing a 15 per cent tax on foreign buyers in the Greater Golden Horseshoe area, which stretches from the Niagara region to Peterborough. This tax will likely have similar effects on Ontario’s housing market.

Both Ontario and Quebec do stand to benefit over the coming years, though, from the low Canadian dollar and strong consumer demand in the United States.

Of course, at the time of writing there is still substantial uncertainty about how Canada’s trading relationship with the U.S. will be affected by the Trump administration. Any significant new barriers could be bad news for Canadian economies and employment growth.

Over an even longer term, Canadian labour markets will face the challenge of an aging population. As the baby-boom generation retires, employers will have many positions to fill from a shrinking pool of labour at the same time as fertility rates are below replacement levels. The immigration system will have a growing role to play in ensuring that Canadian employers have access to the employees they need.