Is the labour market really as strong as they say?
From the August 2018 print edition
My finger is very much on the pulse of two key sectors in the Canadian labour market. I’m a member of a Public
Service Union and against my wishes there was a work stoppage last year that lasted for more than a month. In addition, I teach part-time through the University of Toronto School of Continuing Studies and the two courses I’m involved with are the Canadian securities course, the bedrock course for entry-level positions in financial services, and the chartered financial analyst program, the requirement for elite positions in the same industry.
Last year’s work stoppage occurred under the aegis of a provincial government that prided itself as being “pro-education.” It’s hard to imagine a more sympathetic bargaining counter-party.
Yet it was impossible to reach an agreement and after a five-week strike, we were legislated back to work. An arbitrator decided that a fair number was a 7.75 per cent increase over four years, which works out to an annual increase of 1.9 per cent. This is approximately what the inflation rate is projected to be which means that in real terms, we are standing still.
I’ve got a related anecdote that pertains to entry-level positions in financial services. When I joined George Brown College in 2002, a former colleague who managed an investment-related call centre approached me. She was willing to offer students a part-time opportunity that guaranteed 30 hours a week, Thursday through Sunday, at $17.50 per hour. After a long hiatus, she reached out to me two years ago with a “similar” offer. But this time no hours were guaranteed and the hourly rate was $18.50 per hour… a meagre increase of 5.7 per cent over 15 years—which told me everything about how much slack there was in the labour market.
The reason why I’m relaying these stories is because I’ve been hearing quite a bit lately about how tight labour markets are in North America. The latest number from Statistics Canada tells us that the unemployment rate in this country stands at 6 per cent, which is generally understood as being full employment. In the US, President Donald Trump loudly and proudly cites the four per cent unemployment rate as evidence that his policies are working. Yet as tight as the labour markets are, we’re not seeing significant wage increases.
What’s going on? I recently encountered a very thoughtful essay on the website: www.seekingalpha.com that helps explain.
Credit where credit is due: The writer is Eric Basmajian, someone whom I was not familiar with before reading How Tight Do You Really Think The Labour Market Is? I’ve already given away his thesis, but what is much more compelling is his evidence (These are American numbers, but my gut tells me that the Canadian ones would be similar).
Basmajian looks at a metric that I’ve never seen before, and it’s the relationship between population growth and employment growth. Over the past 10 years, which is the period from the economic bottom to present, there have been more than 17 million new jobs created, which sounds like a big number. Yet over the same period, population growth has been 21 million. This is a disquieting statistic but there is a far worse one. When you look at the number of able-bodied people of working age in the US, only 60 per cent are actually working!
There are always “good” reasons why some people are not employed. If you are in medical school, picking up both important and marketable skills, then there’s nothing to be worried about. And clearly this pertains to some people, but surely not a majority. It stretches credibility past the breaking point to honestly believe that four out of 10 people of working age not working is an unabashedly good thing.
Then there’s one more piece of evidence, capital market related, that both suggests and explains why wages are not increasing. Companies are spending more money than ever before on buying back shares, rather than investing in new plant and equipment. For about 40 years, share buybacks averaged two per cent of GDP and this has ballooned to six per cent. This is a telling sign that the for-profit sector doesn’t see great investment opportunities.
There are a couple of important implications to the realization that unemployment isn’t really low, it’s actually higher than historical norms. The first has to do with interest rates. There seems to be a rush by both the Federal Reserve and Bank of Canada to raise interest rates, even while inflation remains tame. This should end immediately and, in fact, I would urge them to recognize the error of their ways and reverse recent hikes.
The second implication is more personal: Be very, very careful before leaving any current job, because the labour market isn’t quite as rosy as you may think!