Macdonald-Laurier InstituteYouth unemployment and underemployment are caused by myriad factors which cannot necessarily be mitigated by a change in monetary policy, writes Linda Nazareth.

By Linda Nazareth, Nov. 1, 2017

Youth unemployment is now at a 40-year low in Canada, yet the Bank of Canada sees it as a pressing policy issue. As of September, the unemployment rate for those between the ages of 15 and 24 was 10.3 percent, the lowest since comparable data became available in 1976.

Rather than cheering or taking credit for the slide, following the Oct. 23 interest-rate decision, Bank of Canada Governor Stephen Poloz said that youth unemployment is the issue that he takes "most personally" and one that he hopes to improve by going slow on interest-rate hikes. Are the numbers wrong, or is Mr. Poloz focused on what is really a retro problem?

It is true that the youth unemployment rate is being kept artificially low because many have dropped out of the labour market. As of September, the labour-force participation rate for those between the ages of 15 and 24 was 62.7 percent, well below the 67.3 percent it hit at the beginning of the last recession in 2008. Maybe Mr. Poloz is haunted by a recent US study by Princeton researchers, which found that a staggeringly high percentage of young men were not looking for work because video games have gotten so much better. In their words, "innovations in gaming/recreational computing" explain as much as 79 percent of the difference in working rates between younger and older men. It would be worth keeping rates low to prevent that on this side of the border.

In Canada, though, there seem to be valid reasons for the drop in youth labour-force participation. According to Statistics Canada, as of last year 58 percent of youth were full-time students as compared to 41 percent 40 years earlier. In fact, over 90 percent of those questioned by Statscan said that they were out of the labour market either because they in school full time or did not want to work for other reasons.

Where Mr. Poloz is onto something is on the issue of underemployment, although that is a tough one to measure. Between 1976 and 2016, the proportion of youth working part time more than doubled, from 21 percent to 45 percent. However, the number that were "involuntarily part time" (part time because of business conditions or because they could not find work) was just 18.2 percent in 2016, the lowest in eight years and certainly down from 24 percent in 1997, which was the first year that Statistics Canada started tracking it.

In Canada, though, there seem to be valid reasons for the drop in youth labour-force participation.

Still, whatever the overall figures say, overqualified-barista syndrome exists, and for sure there are also many graduates taking jobs that are not a match with their qualifications. An analysis by the Parliamentary Budget Office looked at a slightly older group, between the ages of 25 and 34, finding that as of 2014 the share of university graduates who were overqualified for their job hit 40 percent, up from 32 percent in 1991. Anecdotally we know that there is more going on as well. Contract work is on the rise as employers find it easier not to make long-term commitments to any workers, particularly younger ones. And the millennial "side hustle" has become commonplace across North America, with a 2017 study by estimating that 1 in 4 US millennials had a secondary source of income aside from their main gig.

Accepting that there are genuine labour-force issues facing young workers, can Mr. Poloz actually fix anything through monetary policy? Well yes, in a "rising tide lifts all boats" kind of way. Keeping interest rates low is positive for hiring, all other things being equal. But while a central-bank governor can influence cyclical trends, it is much more difficult for him to impact secular ones.

Global competition and the aftermath of recession is keeping business focused on the bottom line.

If young workers are underemployed or are involuntary gig workers, it is not really because businesses find that interest rates are too high (which they are really not, by any kind of historical standard). Instead, global competition and the aftermath of recession is keeping business focused on the bottom line, and technology is offering alternative ways to get things done as well. Those are certainly issues for young workers, but they are not ones that can be fixed by moving interest rates up or down by a quarter point.

Linda Nazareth is MLI's Senior Fellow for Economics and Population Change. She is an economist, author, blogger, broadcaster and speaker.

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