Canada’s government is bracing for winter, and not the kind that brings fluffy white stuff. This week the Government of Canada (GoC) released its 2023 Fall Economic Statement. Buried amongst notes on higher deficit spending is a forecast for a sharp decline for labor. Unemployment is forecast to rise by hundreds of thousands of people in just a few months, primarily impacting recent immigrants. Households should also get used to it—they don’t see a return to the current unemployment rate in the near term.
Canada Expects 211k More Unemployed People By The Middle of Next Year
Canadian policymakers are bracing for the unwinding of its tight labor market. The Economic Statement’s unemployment forecast shows an increase of 0.8 points to 6.5% by Q2 2024. That would see unemployment rise by 170k people to 1.4 million, if population growth is excluded.
Canadian Unemployment Rate Expected To Rise
The projected rate of unemployment in contrast to the current level, contrasted with previous recessions.
Source: Government of Canada Fall Economic Statement.
The forecast does reference population growth though. If the current labor force trend exists, unemployment would rise 17.2% (+211k) to 1.44 million people. How do we know that policymakers included the population growth? They expect it to represent the bulk of those that will be searching for work.
Welcome To Canada! Don’t Expect A Job, Eh
Worried about losing your job? Relax, it’s young adults and recent immigrants expected to take most of the hit, apparently. Though it sounds like wishful thinking.
“Given solid population growth is expected, much of this adjustment would reflect a slower pace of hiring, rather than a large number of layoffs,” reads the statement.
Unfortunately, the statement doesn’t quite jive with reality. The end of the business cycle typically comes at the end of a credit cycle, with sky-high shelter costs. Disposable income is then diverted to pay for excess credit, reducing excess demand. Falling consumption means fewer people required to produce and deliver goods and services. In short, “excess” labor exists that needs to be purged while people pay off the borrowing.
Canada’s embrace of rapid population growth may help soften the blow. However, the vast majority of immigrants are paid less than domestic workers. They also face shelter costs much higher than the average Canadian currently pays. It’s unlikely that immigrants would drive significant consumption outside of necessities.
Canadian Labor Market Not Expected To Return To Current Strength In The Near-Term
The GoC doesn’t see weaker labor markets to be a quick stint, only partially recovering a year later. Only a 0.2 point reduction to the unemployment rate is expected by 2025. Prior to the pandemic, this level of unemployment was last seen around 2017. Not exactly a period people associate with an economic disaster, but it won’t feel the same.
Keep in mind, this is a rate we’re discussing. At the peak forecast, the rate might be similar but it would include an additional 160k people. Policymakers tend to focus on rates like in finance, a certain percentage of failure is expected. It may not seem like an alarming issue as long as a certain share of assets (people) are doing well. However, 2017’s rate today is like adding the equivalent of St. John’s population to the numbers. It’s hard to see that not having a greater impact on the economy.
In addition, the way the labor force handles international students means the numbers undercount the issue. These students aren’t considered unemployed for statistical purposes, but they’re a significant share of job seekers. They also happen to provide “cheap labor” for industries that require low skill labor such as big box stores, as per the country’s immigration minister. Competition for those jobs still exists, part of the population searching for those jobs just aren’t an issue on paper.
