November 1, 2012 - In today's Globe and Mail, MLI Senior Fellow writes about the increase in involuntary part-time employment compared to pre-recession numbers and why this might be the new normal. Full column below:
By Linda Nazareth, The Globe and Mail, November 1, 2012
Canada's labour market, we constantly hear, is remarkably healthy compared to most of those in the developed world. On the surface things look pretty rosy. Canada has recouped the jobs lost in the recession and added more. The unemployment rate is a half a percentage point below the U.S. number. But, like many countries, Canada has too many people working part time who would rather be pulling in a full-time paycheque. Will they just have to wait for the next phase of the expansion, or are they just out of luck?
In September, 2008, just as the recession was taking hold, the percentage of 'Involuntary part-time' employment accounted for 20 per cent of part-time employees, or about one in five. That percentage jumped to 26.3 per cent a year later, in September 2009. It moved down to 24.8 per cent in 2011 and, as of September 2012, was 25.3 per cent – high by anyone's standards. So despite a broad labour market recovery since the last recession, more than one out of every four part-time employees in Canada would like to have a full-time job, but cannot find one. (Statistics Canada does not seasonally adjust the data on involuntary part-time work - meaning you cannot compare month to month - so it makes sense to compare every September)
The number of involuntary part-time workers is a powerful enough indicator that it is one of the reasons that a hike in interest rates is still on hold. In his most recent speech, Bank of Canada Governor Mark Carney noted that 'we are still in a position where there are more Canadian who want to work than are working, and the level of involuntary part-time (workers) is still elevated'.
It would be easy to say that this was all about youth workers getting the short shrift, but the pain seems to be shared fairly equitably. As of September, 2012, the percentage of part-timers aged 15 to 24 who would have preferred to be full-time was 16.2 per cent, compared to 30.1 per cent for those over 25. The lower figure for young workers is not a surprise of course, given that there are a disproportionate number of workers in that age group who are in school and not available for full-time work. Both youth rates and rates for those 25 and older have climbed since the recession and barely edged lower. The youth rate shot up from 11.7 per cent in 2008 to 16.2 per cent a year later. As of September 2012, the rate was stuck at that same level. For those 25 and over, the involuntary rate was 25.2 per cent in 2008 and 31.7 per cent a year later. It has come down just a bit -- 30.1 per cent in September 2012.
So the trend is clear enough: there is more involuntary part-time employment than there was pre-recession, and there has been very little improvement in the situation over the past three years of recovery. So what happens next? Mr. Carney seems to be suggesting that there is a lagged business cycle as regards to full-time employment, and that when the situation improves he will be able to raise interest rates. That is certainly possible. Employers still have a recession mentality, and may be waiting as long as possible before adding to their full-time payrolls.
The other, darker, answer to when involuntary part-time employment will fall is 'never, more or less'. That answer suggests that there has been a permanent shift in the way that business is done and that companies are comfortable with keeping costs down by employing as many people as possible on a part-time basis. Part-time workers can be added or subtracted much more easily than full-time employees, and are much cheaper in terms of benefits. For some industries at least, it may be a business model that suits the post-recession world.
If the answer is the latter one, then there are a couple of things to focus on. We do know that full-time work is on the rise, although clearly there are some workers who are getting shut out of the available opportunities. If the problem is that they lack the skills to match available positions, policy could address the situation. More importantly, the tax policies that make it so formidable to add workers should be adjusted.
The real problem, however, is that in a skittish world companies want to travel light and be able to change direction on a dime. That attitude might shift, but not for a while. The net result is that a lot of Canadians are going to be working less than they want to for a while, and the economy is going to be operating at less than capacity until they do.
Linda Nazareth is the principal of Relentless Economics and senior fellow for economics and population change at the Macdonald Laurier Institute. Visit her at relentlesseconomics.com