Study: Inside the labour market downturn
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Employment rebounded more quickly from the recent economic downturn than it did in the recessions of the early 1980s and early 1990s.
In October 2008, employment peaked in Canada. During the following 12 months, employment declined by more than 400,000, but began to recover quickly in the subsequent year. January 2011 Labour Force Survey data indicate that employment took 27 months to fully recover its October 2008 level. In contrast, employment took 40 months to get back to its pre-recession level in the early 1980s, and 53 months in the early 1990s.
Note to readers
This article uses monthly data from the Labour Force Survey to examine the evolution of the employed population, unemployed population, and those not in the labour force between October 2008 and October 2010.
Where possible, the article provides comparisons with the first two years of the 1980s and 1990s downturns. However, not all numbers could be generated because of conceptual differences. For instance, detailed information about non-participants and the number of involuntary part-timers could not be compared with the previous downturns.
This article also examines some alternatives to the standard unemployment rate that include some groups that are typically not included in the unemployed population. It also provides comparisons with the U.S. unemployment rate.
While employment has recovered, more people remain out of work than before the downturn. Between October 2008 and October 2010, the number of individuals without a job increased by 800,000. These include people who were classified as unemployed, as well as those who were not looking for a job and consequently were not considered participants in the labour force.
This increase was smaller than during the two previous downturns, especially because the unemployed population grew at a slower pace during the recent downturn.
Nevertheless, several indicators of slack labour market demand (for example, the number of unemployed, long-term unemployment and involuntary part-time work) were still above their pre-downturn levels.
Between October 2008 and October 2010, the number of people classified as unemployed rose by 341,000 (+31%).
During the first two years of the 1990s downturn (April 1990 to April 1992), unemployment increased by 453,000 (+42%). In the first two years of the 1980s recession (June 1981 to June 1983), unemployment grew by 669,000 (+75%).
One reason for the slower increase in unemployment in the recent downturn was that permanent layoffs increased more slowly.
Between October 2008 and October 2010, the number of permanent layoffs rose by about 86,000 (+30%). This was below the increases of 57% from April 1990 to April 1992 and 116% from June 1981 to June 1983.
Other categories of unemployed workers also increased at a slower rate. For example, the number of "new entrants" (those with no previous work experience) and "re-entrants" (those who returned to the labour force after a period of non-participation) rose 33% during the most recent downturn. This compares with increases of 35% in the first two years of the early 1990s recession and 50% in the first two years of the early 1980s recession.
In all, permanent layoffs accounted for less than 30% of the increase in the unemployed population during the most recent downturn, compared with more than 50% in the first two years of the two previous recessions.
Long-term unemployment is an indicator both of slack labour demand and its consequences for individuals. Just before the recent downturn, more than 80% of unemployed individuals had been without a job for 25 weeks or less, while less than 8% had been unemployed for at least one year.
Between October 2008 and October 2010, the number of unemployed people who had been without a job for at least one year almost doubled. Together with those who had been without a job for 26 to 51 weeks, these workers represented 23% of unemployed people in October 2010 compared with 15% in October 2008.
Still, long-term unemployment increased at a faster pace during the first two years of the two previous downturns. The number of individuals who had been unemployed for at least 52 weeks more than doubled in the early 1990s recession and almost quadrupled during the recession of the early 1980s.
Non-participants in the labour force
Between October 2008 and October 2010, the number of individuals aged 15 and over who were neither employed nor actively looking for work (the non-participants) increased by 458,000 (+5%). In comparison, the number of non-participants increased by 8% from April 1990 to April 1992 and by 3% from June 1981 to June 1983.
Discouraged job seekers (those who give up looking for a job because they believe none is available) are frequently cited as a source of growth among non-participants in labour market downturns. However, their proportion of non-participants (less than 1%) is so small that it has little effect on the total.
Rather, the number of non-participants during the recent two-year period grew mainly as a result of an increase in the number of students. The number of students grew by nearly 250,000 (+17%) over the period. An increase in the student population is not necessarily indicative of a back-to-school movement among workers. It could also mean that current students did not participate in the labour market due to the slowdown in hiring.
The number of seniors aged at least 65 also contributed to the overall increase in the number of non-participants, a natural consequence of the aging population.
Involuntary part time
Although employment levels recovered faster than in previous downturns, there were still 113,000 fewer full-time jobs in October 2010 than in October 2008.
In contrast, the number of part-time workers rose by more than 50,000, but that increase was not uniform across all categories of part timers.
Individuals who worked part time but would have liked to work full time (also called involuntary part timers) increased by 140,000 (+20%) over the period. Meanwhile, the number of individuals working part time on a voluntary basis declined by about 87,000.
United States: Comparable unemployment rate
It is also useful to examine differences in unemployment rates between Canada and the United States. When they were compared using similar concepts, unemployment rates in Canada and the United States in early 2008 were almost at parity. However, by the summer of 2008, a gap had grown between them. By the end of 2010, the unemployment rate in the United States was still over 9%, while the adjusted rate in Canada was just under 7%.
Definitions, data sources and methods: survey number 3701.
The article "Inside the labour market downturn" is now available in the February 2011 online edition of Perspectives on Labour and Income, Vol. 23, no. 1 (75-001-X, free). From the Key resource module of our website, choose Publications.
For more information, or to enquire about the concepts, methods or data quality of this article, contact Jason Gilmore (613-951-7118; firstname.lastname@example.org) or Sébastien LaRochelle-Côté (613-951-0803; email@example.com), Labour Statistics Division.
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