11-010-XIB
Canadian Economic Observer
February 2006

Emerging Patterns in the Labour Market: A Reversal from the 1990s

by P. Cross*

Introduction

An article published in the March 2005 CEO noted that many labour market trends established in the 1990s had been reversed since 2000. Some of the most notable developments included the resurgence of construction and resource jobs, especially in rural areas, while factory jobs disappeared, notably high-tech and auto jobs found almost exclusively in large cities. In the service sector, computer services flattened out while public services were restored after cuts in the 1990s. The resurgence of multinational resource companies and government also favoured job growth in large establishments. Meanwhile, older workers increasingly supplied these growing demands for labour.

This paper looks at whether these patterns continued in 2005. To summarize, most of these recent trends intensified in the past year.¹ In particular, it was another banner year for the resource sector and construction. These gains were reflected in stronger employment growth in rural areas and in large firms. In terms of supply, older workers continued to fill the bulk of new jobs. Still, job growth outstripped the labour force, pushing joblessness to a 30-year low and boosting real wages. A new trend was full-time positions accounting for most job growth, especially in Alberta and BC where labour shortages emerged.

Industry Growth

Overall, employment in non-farm natural resources jumped 7% last year, its largest increase on record back to 1988. Resource jobs have risen in five of the last six years, a marked turnaround from seven annual declines in the 1990s, a decade with a total drop of 14%. The pick-up in the primary sector reflected the continued surge in oil and gas and a recovery in metal mining, which outweighed losses in forestry.

Mining outside of oil and gas led all industries with an 16% surge in jobs last year. This snapped a downward trend that stretched back to 1990 and saw the loss of nearly half of all jobs in this industry. Metal mining was lifted by buoyant prices, many of which hit their highest level in over a decade. Over half these jobs are in Ontario and Quebec. Coal mining also rebounded from a decade-long slump, notably in BC as a result of rising demand from China.

Figure 1

Oil and gas continued to experience double-digit growth. All areas expanded: extraction grew as new developments in the oilsands and offshore Newfoundland came on line, while the search for new sources intensified to replace dwindling conventional supplies.

Construction jobs rose by 7%, on top of 5% growth in each of the previous three years. However, the sources of growth switched over the course of the year. Housebuilding slowed last year, after housing starts had risen every year since interest rates tumbled in the wake of the 9/11 attacks. The slack was more than offset by surging non-residential investment in both building and engineering.

While construction growth was supported by Alberta’s continuing investment boom, strong gains were also posted in BC to support the infrastructure for trade with Asia and the beginning of construction for the 2010 Winter Olympics. In central Canada, losses in industrial demand were outweighed by gains in the public sector and strong commercial demand in Ontario, notably warehouses and office buildings.

Figure 2

Public sector employment rose another 2%, continuing its recovery from cutbacks in the 1990s. Education led the way, rising 7% as universities stepped up hiring. Hospitals also expanded 5% due to an increase in funding.

Not all recent trends were new. Some industries that fared well in the 1990s have continued to grow steadily since, including 2005. Business services benefited from the inexorable trend to outsourcing a wide range of services. Finance and real estate have been able to capitalize on a proliferation of new financial instruments, as well as growth in the stock, commodity and housing markets. Strong investment demand gave a boost to architectural and engineering and legal services as firms drew up plans to expand. Security services continued to grow rapidly in the wake of the 9/11 attacks.

Table 1 Average Annual Job Growth by Industry*

Trade employment received a boost from wholesalers as international trade rebounded. Retail jobs were lifted by double-digit gains in building materials, electronics and appliance stores. Since 2000, employment in trade has already exceeded its growth in the 1990s, largely due to greater gains in retail sales.

Conversely, many high-flying industries in the 1990s have returned to earth with a thud. Manufacturing jobs contracted by 3.7% last year, continuing a slump that started when the high-tech bubble burst late in 2000 and worsened when the exchange rate began to rise in 2003.

Figure 3

The loss of jobs in auto manufacturing that began in 2001 after a decade of rapid growth continued. But almost all manufacturing industries shed jobs last year as the rising dollar and raw materials costs squeezed profits. Increased import competition pushed down jobs in textiles and clothing at a double-digit rate, aggravating the slide that began in 1999. Furniture also saw double-digit losses. Layoffs continued in lumber and pulp and paper, both of which employ about a third less people than in 1990.

Ontario and Quebec bore the brunt of the loss of factory jobs, but Alberta also posted a sharp decline last year. This 9% drop seems related more to a labour shortage than slumping demand, as 42% of Alberta’s manufacturers reported a shortage of skilled labour and 20% unskilled labour at year-end.

Besides manufacturing, a number of other industries that did well in the 1990s continued to struggle so far this decade. Jobs in computer services continued to flatten after leading growth in the 1990s. A small rebound last year left employment less than 3% above its 2001 level, a far cry from tripling in the previous decade.

Temporary help agencies and air transport were two other industries that led growth in the 1990s but slowed thereafter. Jobs at temporary help firms fell another 10% in 2005. Tight labour market conditions, which sent the unemployment rate to a 30-year low, were also reflected in fewer social assistance jobs for the first time since the economic boom at the end of the 1990s, possibly due to fewer welfare cases.

Air transport of course fell dramatically after 9/11, but had already slowed before that as firms trimmed travel budgets. After these troubles resulted in a shake-out in 2004, the industry turned around last year, and jobs recovered.

The recovery of travel from overseas was reflected in a number of other developments. Sight-seeing jobs hit new highs, and accommodation also recovered from a drop the year before. Casinos and gambling, however, remained hampered by weak travel flows from the US. All these travel-related industries had expanded rapidly in the 1990s, especially gambling.

Figure 4

The forestry sector was the major exception to the boom brought about by record commodity prices, continuing a decade-long slump with employment down 4% to its lowest level since 1987. Farming as a main job rose 5%, recovering some of their recent steep losses when it was plagued by drought and disease.

In the 1990s, white collar jobs grew much faster than blue collar, which fell outright excluding manufacturing. Blue collar jobs have rebounded since 2000. This recovery was interrupted last year by the layoffs in manufacturing: other blue collar jobs continued to grow steadily due to the strength in resources and construction. White collar job growth has picked up since 2000 thanks to the gains in business and the public sector (mainly health and education).

Large Establishments Dominate

Mining and oil and gas are dominated by large multinationals. With double-digit growth in these industries, and the public sector expanding steadily, it is not surprising that large establishments (more than 500 employees) drove employment gains as they have generally since 2000. Their payrolls increased 6% last year, one of the largest gains for these firms since this data was collected in 1997. Medium-sized employers (20 to 500 employees) were next with a 1.1% gain.

Figure 5

Small firms with less than 20 employees continued to lag, as they have for most of this decade. This is a reversal from the previous decade, when small firms dominated job growth, especially in the ICT sector.

The jump in jobs in large firms was mirrored in more jobs held by union members, which outstripped the growth of non-union jobs for one of the few times on record back to 1997.

Rural Regions Surpass Urban

Jobs in small towns and rural areas rose 1.3% last year, comparable with the 1.4% gain in urban Canada. Rural employment has matched urban areas since 2001, after lagging at half their growth in the previous decade (comparisons with the 1990s are hampered by a change in the Census definition of urban and rural).

The breakdown of growth within rural Canada was even more striking in 2005. Lower employment in small towns masked a 4.1% jump in purely rural areas. The weakness in small towns may reflect the closing of forestry mills, while rural areas were helped by the recovery in mining and farming.

Figure 6

The loss of manufacturing jobs hit both urban and rural areas. Construction grew faster in urban areas, while the boom in commodity trade helped rural jobs in the primary and transportation industries.

A look at which regions posted the largest job gains in 2005 confirms the recovery of rural areas. Northern Manitoba led the way, up 10%. Athabasca was close behind, fuelled by the explosive development of its oilsands. The revival of mining helped the north and interior of BC. Cape Breton led the Atlantic region in job growth, up 6.5%, the sixth best among the 68 economic regions in the Labour Force Survey. Rural Saskatchewan was helped by the rebound in farming.

The growth of rural regions was quite uneven, however, due to the cuts in the forestry sector. The closing of several lumber and paper mills was reflected in job losses in several rural areas of New Brunswick, Quebec and Northern Ontario. Despite weak demand, forestry operations in the interior BC were steady, partly due to sustained cutting to slow the advance of the pine beetle.

Employment in cities last year was hampered by losses in those whose industrial base contracted. Montreal fared the worst of the three largest cities (up only 1%) due to weak manufacturing (notably textiles and clothing). Hamilton also saw jobs retreat due to declines in manufacturing. Cities driven by autos were mixed: Windsor declined, but Oshawa’s growth remained strong.

Some provincial capitals stalled or lost jobs even as the rest of the province grew. This was most evident in Halifax, Winnipeg and Regina. Victoria was a notable exception, as construction fed the fastest growth (+5%) of Canada’s cities.

Toronto and Vancouver bucked the trend of weaker job growth in cities, with increases of over 2%. Despite fewer factory jobs, Toronto compensated with large gains in finance, education, trade and construction. Vancouver’s role as a hub in trade with Asia was reflected in large gains in trade and transportation, reinforced by a construction boom.

In Alberta, the strong growth of rural regions appears to have been partly at the expense of its largest cities. Overall, jobs fell slightly in Edmonton, offsetting a small gain in Calgary. But this masks substantial industry shifts, with losses in relatively low-paying jobs in accommodation and food and manufacturing as workers were attracted to better jobs elsewhere in cities (notably business and public services) or resource and construction jobs in rural areas. The same phenomenon probably accounts for the drop in farming jobs in Alberta. Unemployment edged down again in Calgary and Edmonton, reflecting continuing tight labour markets.

More Full-time Jobs

The strength of the labour market was reflected in a sharp move from part-time to full-time employment. Part of this shift was encouraged by the strong growth of resources, construction, and the public sector, all of which have relatively few part-time employees. However, a growing shortage of labour appears to have played the largest role: it encouraged employers to convert part-time employees to full-time to meet their growing labour requirements, while empowering part-time employees in weak sectors (like accommodation and food) to seek out better opportunities elsewhere.

Figure 7

The shift to full-time began after 2003: since then, full-time positions have risen 4%, while part-time jobs fell outright. This process accelerated last year, when full-time jobs rose 1.6% versus just 0.5% for part-time. This is in marked contrast with the 1990s, when part-time jobs rose more than twice as much (22.5% versus 8.5%).

The notion that shortages were the driving force behind this dynamic is supported by its regional pattern. In Alberta, full-time jobs rose 2.5% while part-time fell 3.2%. There was also a move to full-time in BC (up 3.9% versus 1.1% for part-time) as unemployment hit a record low. In the rest of Canada, both full-time and part-time jobs grew 1%.

The preference for full-time workers was uniformally evident in all industries that raised employment since 2003. Partly, this reflects that construction and resource firms have mostly full-time jobs. But it included industries that normally hire a large share of part-time workers, notably retail trade. Accommodation and food, which also favours part-time hiring, shrank after 2003.

There were other manifestations of a labour market approaching full employment. The average workweek for full-time employees rose for a second straight year, after steady declines since 1994. All the drop in part-time jobs since 2003 has been due to a one-third decline in people who could not find full-time work (from 145,000 in 2003 to 96,000 last year). Meanwhile, 9% more people worked overtime last year, notably in white-collar occupations (blue collar overtime was dampened by cuts in manufacturing).

Another sign of a tightening labour market was increased work stoppages in 2004 and 2005. They were the most in any two-year period in a decade. Some strikes were obviously motivated by the opportunity presented by high prices and robust demand, notably in mining (especially iron ore) and the port of Vancouver. Conversely, there was little appetite for strikes in manufacturing.

Average hourly wage growth accelerated to 3.2%, the most since the high-tech bubble early this decade. Even allowing for the upturn in energy prices, real wage growth was 1%, the best on record back to 1997. With jobs growing steadily, total labour income growth accelerated from 4% in recent years to over 5%.

The provincial pattern of wage increases highlights tight labour markets in Alberta and BC as the major factor. The average hourly wage in Alberta rose 6.6% last year, up from 2.3% in 2004, while BC moved from no change to a 2% gain. Wage growth was little changed in Ontario at 3%, while Quebec, Manitoba and Saskatchewan all slowed by at least a percentage point.

More Jobs for Workers Over 55

The cyclical trends in industry demand were over-laid against the background of the inexorable aging of our population. While the share of older workers in the labour force would inevitably have risen as the first of the boomer generation turns 60 this year, the growth of older workers was given a further boost by the end of downsizing in resources, construction and the public sector, all of which have relatively old workforces.

Figure 8

The growing presence of older workers continued in 2005. The number of workers aged 55 years and over rose by 6.2% last year, compared with a 0.7% increase for workers under 55 years. This trend dates back to 1996, unlike many of the shifts in labour demand discussed above which began only after the arrival of the new millenium. 1996 was the inflection point when the share of the older population began to accelerate sharply.

The growing number of older people combined with their increasing likelihood of staying in the labour force has steadily driven up their contribution to overall job growth. Since 1996, the share of all job increases going to workers 55 years and over has risen steadily from 19% to 58% last year (it averaged less than 10% in the 1980s). This share will continue to rise, since the fastest growing segment of the population are 50 to 55 year olds.

The increased attachment of older workers to the labour force reverses a long-term trend to earlier retirement. The reasons are not completely clear. The stock market crash of 2001 helped accelerate this trend, but it was well under way before that and has continued even as the market rebounded. Changing attitudes to retirement by boomers appear to play a larger role, while governments have moved to abolish mandatory retirement.

Figure 9

A recent study found that one-quarter of people who retired between 1992 and 2002 returned to the labour force, especially professionals in good health. Less than half (38%) cited financial considerations as the motive for returning to work. Nearly half (45%) took part-time jobs.²

Figure 10

But a greater desire by employers to retain older workers also appears to have been a factor. Through most of the 1990s, industries with older workforces were downsizing, notably in the primary sector, construction, public administration and recreation (and manufacturing during their slump in the early 1990s). These industries often resorted to early retirement incentives to help shrink their payroll.

Now, these same industries are leading growth, especially for older workers. For example, employment of workers 55 years and over has risen the most in mining and oil and gas, up 114% in the last five years. Other sectors with above-average gains in older workers include recreation (+79%), public administration (+65%) health care (+60%), and transportation (+50%). Presumably, many of these gains reflect a lower retirement rate rather than new hires.

The distinguishing characteristic of the boomer generation in the labour market has always been their higher level of education compared with previous generations. This greater education is reflected in the proportion of people aged 55 to 64 with some postsecondary education, which rose from about one-quarter in 1990 to one-half last year as boomers moved into this cohort en masse.

As a result, older workers increasingly have the education and skills coveted by employers. Since 1995, 94% of the increase in the number of people 55 and older had some postsecondary education, including a 126% gain for those with a university degree. As a result, employers seeking workers with postsecondary qualifications had little choice but to look at older workers: nearly 40% of the better-educated were over 45 years old last year, nearly double their share in 1990.

The significance of the growing number of older people with higher education is that they are more likely to stay in the labour force and find a job. The participation rate of people aged 55 or more with some post-secondary education is nearly twice as large as for those with high school or less, and the gap has grown since 1990. They are also twice as likely to be employed, with an employment rate of 40% versus 21% for those with only high school or less.

Figure 11

Accentuating the ageing of the labour force, young people continued to withdraw from the labour force. Their participation rate fell 1.1% points to 65.9%, the second straight drop despite lower unemployment. The recent dip, despite tight labour market conditions, accompanied increased school enrollment. Youth participation fell steadily from 70% in 1990 to 62% in 1997, before recovering to 67.4% in 2003.

Conclusion

It should not be surprising that many of the shifts in employment observed so far this decade continued last year. This is because the underlying factors driving the economy recently continued to gather steam. Rising commodity prices for energy and metals were fuelled by strong growth in China and the US. Record profits and high capacity use spurred more investment. A third straight increase in the exchange rate forced manufacturers to shed workers and become more efficient.

Domestically, consumers continued to spend more. Government, flush with surpluses, also spent more on services, especially in health and education. The only major shift in spending patterns last year was a slowdown in the housing boom that took-off in 2001.

These shifts reverberated in the type of jobs created and their location. The recovery of resources helped revive employment in many rural regions after years of declines, and was given a further boost by the recovery of farming last year. The upturn of the fortunes of these industries gave a fillip to demand for older workers, who already were taking a commanding place in the labour market as the population ages. Conversely, many urban areas were undercut by the loss of factory jobs.

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Notes