A slowdown of some kind could be a real possibility in the near future. Linda Nazareth discusses how a new recession could play out in the labour market. 

By Linda Nazareth, January 9, 2018

What if you had a recession and workers got hit hard but the unemployment rate hardly changed at all?

Strange as it sounds, it is a real possibility. Given the transitions we are seeing in terms of jobs, the next recession could play out very differently than past ones. That is something worth thinking about as we face a year of economic uncertainty.

What we do know is that a decade or two from now, we will get the work done in a different way. Full-time workers, part-time workers, remote workers, gig workers, robots and cobots – or collaborative robots – will all likely be in the mix, but in altered proportions to what they are now. While the general feeling is that there is plenty of time to plan for that reality, a recession could test that assumption.

To be sure, we are already seeing a transition to tech and away from traditional work models, but to date those shifts have been cushioned by a couple of things. For one, over the past few years North America has pretty much been on top of the business cycle when it comes to hiring. It took some time, but we ended 2018 with some of the lowest unemployment rates seen in decades in both Canada and the United States.

While those very low unemployment rates reflect a strong demand for workers, they also illustrate that those workers are in relatively scarce supply. Owing in part to an aging work force, the supply of workers has been expanding slowly compared with previous decades. In 2018, labour force growth (which measures the increase in the number of people seeking work) was 0.8 per cent in Canada, about half the pace as the 1.6 per cent seen in 1998. The fact that labour supply is growing slowly has given workers an advantage that they might not have had otherwise.

But maybe we should not be looking at unemployment rates. Once upon a time, you could count who was working and who was not and it was a reasonable measure of economic health. Now, we have millennials who are on contracts when they want to be permanent employees, baby boomers driving Ubers rather than in full-time work, and an abundance of workers unhappy with both their compensation and their jobs. Those people could already tell you that the economic statistics do not tell you everything.

On balance, traditional employers have mostly stuck with a full-time worker model. Getting the best workers, goes the usual train of thought, requires hiring them and giving them benefits. The recession of a decade ago might have moved many companies away from that model, but the situation of the past years was slowly moving them back. If pushed to the wall by a recession, however, huge changes may be worth implementing, whether that means gig-ifying the work force in earnest or investing heavily in technology.

So let’s talk about that threat of recession, because, well, everyone else is. For sure, politicians and central bankers could be all-powerful and all-knowing. If so, no worries at all, we may have killed the business cycle once and for all and recessions may well be a thing of the past. If you are a tiny bit more skeptical than that (as are, apparently, the financial markets), a slowdown of some kind could be a real possibility in the near future.

So how will it play out for workers? We have seen hints of it before. Sometimes it has happened in a fairly subtle way. When recessions of the 1980s and 90s hit, administrative jobs may not have been lost in huge numbers, but there was not much hiring in those categories either. Instead, companies continued to invest in areas such as word processing and voice mail that over time replaced some job categories. A similar shift happened in manufacturing, where machines and robotics have replaced jobs over the past decades. Sometimes the shifts are more overt, however. When the most recent oil downturn hit Western Canada a few years ago, energy companies made big investments technology in order to get the job done with fewer people, permanently changing the need for workers.

This time around, the shift may not just be to technology. Technology now allows companies to slice and dice job tasks, perhaps just hiring someone to do a series of assignments, rather than bringing them on full time. For the most part though, larger companies find it easier to deal with permanent employees rather than co-ordinating a series of gig workers.

But economic challenges could change the math on that pretty quickly.

If a recession causes workers to be replaced by robots, of course the unemployment rate will spike up and we will get calls for new economic policies. If, however, a recession results in work getting done in new ways, we may never see the unemployment rate change at all – even though the realities for workers will be very different.

Linda Nazareth is a senior fellow at the Macdonald-Laurier Institute. Her book 'Work Is Not a Place: Our Lives and Our Organizations in the Post Jobs Economy' is now available.