Employers cut jobs earlier in recessions

Employment follows business cycle more closely than expected
By Gordon Sova
|hrreporter.com|Last Updated: 07/09/2009

It has been popular wisdom that employment is a lagging indicator of economic growth: employers hold on to employees beyond the point when they have enough to do and don’t hire them back until there has been growth for a significant period of time. This means that the unemployment rate does not reflect an economic downturn until after it has begun, nor does it reflect the return to good times until after it has taken hold. Equally, measures such as hours worked and productivity mirror this pattern.

However, a recent study by Statistics Canada in the Canadian Economic Observer argues that this conventional wisdom is more an American than a Canadian phenomenon. After analyzing data from the last 30 years, StatsCan has found a close relationship between changes in output as measured by GDP and changes in employment.