The January unemployment rate fell because the workforce is shrinking, not because it’s easier to find work
Key points
- A lower unemployment rate doesn’t always mean more people are working. People who stop looking for work are no longer counted as unemployed.
- That means the unemployment rate can go down even when jobs are being lost.
- When fewer people work, there is less income flowing through the economy, which affects everyone.
- Canada has long depended on population growth to have enough people working, so when the population shrinks, the impact is even more serious.
What’s this?
Canada’s falling unemployment rate is being read as good news. It isn’t. The decline reflects fewer Canadians working because fewer people are looking for work and fewer people are here to work at all.
We in Canada rely on Statistics Canada for the labour and population data that tell us how the economy is actually performing, not how we might wish it to be performing.
But even trusted data can need some interpretation.
Statistics Canada’s recently released labour force survey for January is an example of why even reliable statistics can mislead without proper context. A key number in that survey is the unemployment rate; the percentage of the labour force that is looking for work. This measure counts only people who are actively seeking work and leaves out those who have stopped looking.
The number of jobs fell by 25,000 while the unemployment rate also fell from 6.8 per cent to 6.5 per cent. While not uncommon in Canada, the number of jobs and the unemployment rate falling in tandem is unusual enough to raise a red flag. However, it was not only jobs that were lost. Potential workers were lost as people chose to stop looking for work. That decline in labour force participation explains why both employment and unemployment fell at the same time.
The pool of people who keep Canada functioning (the labour force) is declining as more people stop looking for work and the overall population shrinks. Population decline is unusual in Canada, which has long relied on steady population growth to support the economy and public services. Last month, Canada’s population actually fell.
British Columbia is doing better than Canada as a whole. Last month, B.C.’s population fell by 0.1 per cent, compared with a national drop of 0.3 per cent. The provincial labour force declined by 0.2 per cent. As a result, the employment rate (the share of the population working) rose by 0.1 per cent, while the number of unemployed fell by 4.6 per cent.
The data for the Vancouver metropolitan area are not directly comparable to the December to January figures because they are reported as a three-month moving average. Nevertheless, they still give us a good idea of the ongoing trends.
Over the past three months, the population of Metro Vancouver declined by 3.4 per cent. We have all heard of people leaving because of the high cost of housing in Vancouver. At the same time, fewer people are coming to Vancouver in part because of restrictions on permanent and temporary migrants.
The labour force also fell over this time period, but at a slower rate, 1.9 per cent, than the total population.
More people were counted as employed and fewer as unemployed, which pushed the unemployment rate down by 0.3 per cent.
A lower unemployment rate is generally a good thing. Unless the labour force is growing dramatically, it means that there are fewer people who want a job, but can’t find one. However, if the unemployment rate is falling because the overall labour force or even the total population is declining, that is not necessarily good news.
Data for just one month should be treated cautiously. Many factors could lead to this being a statistical blip rather than a trend. January’s data strayed from the usual patterns. We will need to pay close attention to the labour force survey results for the coming months to see how durable these changes are.
Dr. Roslyn Kunin is a respected Canadian economist known for her extensive work in economic forecasting, public policy, and labour market analysis. She has held various prominent roles, including serving as the regional director for the federal government’s Department of Employment and Immigration in British Columbia and Yukon and as an adjunct professor at the University of British Columbia. Dr. Kunin is also recognized for her contributions to economic development, particularly in Western Canada.
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