Unemployment rate not a reliable gauge: Fraser Institute

Less reflective of overall labour market performance due to demographics
|hrreporter.com|Last Updated: 01/17/2018
Labour market, economy
“Pointing to a falling unemployment rate as a sign of positive economic performance could be misleading,” said Jason Clemens of the Fraser Institute. REUTERS/Mark Blinch

A falling unemployment rate does not necessarily mean there’s a healthy growing labour market in the future, in part because Canada’s population is getting older and more Canadians are retiring from the workforce, according to a study by the Fraser Institute, a public policy think-tank.

“Historically, the unemployment rate and the employment rate worked in tandem — when one went up, the other went down — but that’s not always true anymore,” said Jason Clemens, executive vice-president of the Fraser Institute and co-author of Why the Unemployment Rate is No Longer a Reliable Gauge of Labour Market Performance.

From 2009 to 2017, the country’s unemployment rate fell from 8.3 per cent to 6.3 per cent, which would historically indicate positive labour market performance. And yet, between 2008 and 2017, the employment rate also fell, from 63.4 per cent to 61.6 per cent, indicating declining employment levels, said the institute.

During the same period ending in 2017, as Canada’s population aged, the labour force participation rate declined as more and more Canadians retired and left the workforce — dropping from a peak in 2008 of 67.6 per cent to 65.8 per cent in 2017.

The rate is forecast to keep dropping to 61 per cent by 2060, said the study. When people exit the labour force because they retire or go back to school, for example, the same amount of employment will now result in a lower unemployment rate simply because the labour force is smaller. And this is not necessarily a sign of a well-functioning, positive labour market, said the institute.

“As more baby boomers retire in the coming years, media, policymakers and Canadians more generally should look at the employment rate — not the unemployment rate — for a more accurate picture of the health of Canada’s labour market,” said Clemens. “Pointing to a falling unemployment rate as a sign of positive economic performance could be misleading.” 

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