Unemployment Rate

Putting the unemployment rate in context

During the 2008–09 recession, Canada’s unemployment rate peaked at 8.3 per cent. The Canadian economy was lucky to avoid much of the job loss carnage in the U.S. and the eurozone, and Canada’s solid financial sector and fiscal position helped it be among the world leaders on this measure in the years following the crisis.

But in recent years, Canada has failed to keep pace with the progress in other countries, partly because of the impact of the negative commodity shock that hit in 2014 and the lingering fallout still being felt in 2016. This is reflected in Canada’s C grade for 2016. The country’s 7.0 per cent unemployment rate in 2016 was in the bottom third of the developed countries examined in How Canada Performs. Still, Canada’s recent slip in the rankings is better than the situation in the 1970s and early 1980s, when Canada routinely got Ds because job creation did not keep pace with the rapidly growing workforce.

Some peer countries, such as Finland and France, continue to record very high unemployment rates as they struggle with the lingering effects of the 2008–09 financial crisis and recession, as well as the European fiscal crisis of 2010–13.

Many other countries, though, have done a better job of making progress on employment than Canada has. In the U.S., the unemployment rate during the recession was well above Canada’s, peaking at 9.6 per cent. But unemployment there has since fallen to just 4.9 per cent, well below Canada’s rate.

At the far end of the spectrum, Japan managed an unemployment rate of just 3.1 per cent in 2016, lower than any of the other peer countries. Despite suffering from a recession last year, a number of unique factors—like falling real wages¹—meant Japan still had an unemployment rate lower than Canada has ever experienced.

How is the unemployment rate calculated?

The unemployment rate measures the portion of people in the labour force who are of working age and who are available for and looking for work, but who are not employed. Countries sometimes use slightly different definitions when drawing up their national statistics: for example, some countries measure unemployment only among people who have registered at government labour offices.² The data we use have been harmonized by the OECD to follow the definition of unemployment above and make the numbers comparable across countries.

However, the OECD unemployment data are not perfectly harmonized, and methodological discrepancies remain. For example, most countries, including Canada, calculate the unemployment rate for people 15 and older. But some countries, including the United States and the United Kingdom, measure the unemployment rate for people 16 and older. This would cause the U.S. and U.K unemployment rates to be understated given that “youths aged 15 tend to have higher-than-average unemployment rates.”³ Also, the U.S. figures do not include passive job seekers—i.e., people who are primarily gathering information, like looking at job ads in the newspaper or the Internet, rather than actively applying for jobs or making job inquiries. The Canadian and European unemployment data, however, do include both active and passive job seekers.⁴

How do the provinces rank on unemployment relative to Canada’s peer countries?

The best-performing Canadian provinces, B.C. (6.0 per cent), Manitoba (6.1), Saskatchewan (6.3), and Ontario (6.5), all get B grades, with unemployment rates in line with peer countries the Netherlands (6.0), Austria (6.0), and Denmark (6.2).

Overall, Canada gets a C and ranks 12th among the 16 peer countries, with an unemployment rate of 7.0 per cent in 2016.

Quebec (7.1), Alberta (8.1), and Nova Scotia (8.3) are C performers and have unemployment rates higher than the national average.

The rest of Atlantic Canada ranks at the bottom of the pack—apart from Nova Scotia, no province in the region scores above a D. New Brunswick (9.5) ranks one notch ahead of the lowest-ranked peer country, France (10.1). Newfoundland and Labrador (13.4) and P.E.I. (10.7), both get D– grades for having higher unemployment rates than the worst-ranking peer country.

How do the provinces’ perform relative to one another?

The unemployment rate differs sharply between provinces. At the top of the class, B.C. had an unemployment rate of 6.0 per cent in 2016, followed closely by Manitoba (6.1 per cent), Saskatchewan (6.3), and Ontario (6.5).

At the opposite end of the spectrum, Newfoundland and Labrador had an unemployment rate more than twice as high, at 13.4 per cent. The other Atlantic provinces perform somewhat better, with unemployment rates of 10.7 per cent in Prince Edward Island, 9.5 per cent in New Brunswick, and 8.3 per cent in Nova Scotia, but they still do worse than the provinces in the rest of the country. In between the two extremes are Alberta and Quebec, with unemployment rates of 8.1 per cent and 7.1 per cent, respectively.

Why is Atlantic Canada’s unemployment rate so high?

Higher unemployment rates in the Atlantic provinces are not new phenomena: none has scored above a C since 1976. Atlantic Canada has more seasonal jobs than other regions, and the employment insurance program requires fewer hours to qualify and pays out benefits for longer than in other parts of the country.  

Newfoundland and Labrador is something of an outlier in the region. It has always had the highest unemployment rate in the country, but it had appeared to be making progress in recent years thanks to the boom in its energy sector that had knock-on effects in local industries. The oil price crash of 2014 has hit it particularly hard, and its unemployment rate has increased substantially over the past two years.

How is the commodity price slump affecting the provinces?

The diversity of the provincial economies means they all respond to external shocks in different ways.

Following the financial crisis, some provinces leveraged commodity exports to help boost their economies. Commodity prices recovered quickly after the crisis thanks in large part to demand from China, whose economy continued to grow strongly during and after 2008–09. This helped provinces with large resource sectors have strong employment performances between 2009 and 2014. Alberta’s unemployment rate fell from 6.5 per cent in 2009 to 4.7 per cent in 2014, and Newfoundland and Labrador’s fell from 15.5 per cent in 2009 to 11.9 per cent in 2014.

During this same period, provinces less dependent on commodities saw their unemployment rate stagnate or even rise as the high oil price drove up the Canadian dollar and made their exports less competitive. Manitoba’s unemployment rate increased from 5.2 per cent in 2009 to 5.4 per cent in 2014; New Brunswick’s rose from 8.7 per cent to 9.9 per cent.

Since 2014, most major commodities have undergone a significant price correction, and this has flipped the story on provincial winners and losers. Resource-based economies that had benefited from high commodity prices—particularly Alberta and Newfoundland and Labrador—suddenly saw their gains evaporate. Between 2014 and 2016 Alberta’s unemployment rate rose from 4.7 to 8.1 per cent, Newfoundland and Labrador’s rose from 11.9 to 13.4 per cent, and Saskatchewan’s rose from 3.8 to 6.3 per cent. In Alberta and Saskatchewan, unemployment is now higher than it was during the peak of the financial crisis.

On the other hand, cheaper commodities have been a boon for provinces that import them. After stagnating above the Canadian average for years, Ontario’s unemployment rate fell from 7.3 per cent in 2014 to 6.5 per cent in 2016. Quebec’s also fell, from 7.7 per cent to 7.1 per cent. The largest of the Atlantic economies, Nova Scotia, has seen unemployment drop from 9 per cent to 8.3 per cent. British Columbia, despite having a large resource sector, has not experienced an uptick in unemployment because its domestic economy is performing better.

How do the territories rank on unemployment?

Compared with international peers, Yukon gets a B grade, the Northwest Territories a C, and Nunavut a D–.

At 14.9 per cent, Nunavut’s unemployment rate in 2016 was higher than all the comparator jurisdictions. This very poor performance is striking given that employment growth in the territory has been robust over the past decade. In fact, Nunavut gets the highest ranking in the country on employment growth in 2016. Two key factors are contributing to the high unemployment rate:

1. Many of the available jobs are filled by relatively higher-skilled workers from the south who do not take up residency in the territories and are therefore not counted in territorial employment statistics.
2. The increase in jobs due to economic expansion has encouraged more Nunavummiut to enter the labour force and search for jobs. As the labour force expands, and not all the new entrants find jobs (many Nunavummiut do not have the right skills to work in the mining or construction sectors), the number of unemployed (which counts the number of people in the labour force without a job) increases, thereby pushing the unemployment rate up.

Yukon, on the other hand, had the lowest unemployment rate in the country in 2016, at 5.6 per cent. Impressively, this is despite having the country’s highest labour force participation rate (75.6 per cent). The unemployment rate in the Northwest Territories was 7.4 per cent, slightly above the national average.

According to The Conference Board of Canada’s forecasts, the economic outlook for the territories is weak for the next few years. Declining commodity prices have made for difficult economic times in the North, where economies depend heavily on resource extraction. Mine closures will hurt employment in Yukon and the Northwest Territories going forward.

The territories are not included in the overall rankings because data are not available for all of the indicators in the economy report card. The Conference Board is, however, committed to including the territories in our analysis, and so we provide information on territorial performance when data are available, such as for the unemployment rate.

The Conference Board of Canada produces a biannual Territorial Outlook report that examines the economic and fiscal outlook for each of the territories, including output by industry, labour market conditions, and the demographic make-up of each territory. The Territorial Outlook can be accessed online through e-Library and for clients subscribing to e-Data.

Research on issues affecting the territories is also produced by the Centre for the North, a Conference Board initiative that began in 2009.

Should provinces aim for zero unemployment?

The ultimate goal of employment policy should be that all Canadians who want to work, and are able to work, should be able to find a job, no matter which province they live in. Unemployment, especially on a repeated or prolonged basis, has a corrosive effect on individuals, their families, and the communities in which they live.

However, “full employment” in economic terms does not necessary mean zero unemployment. Rather, it is the lowest possible unemployment rate without igniting inflation, with the economy growing and all factors of production being used efficiently. There will always be unemployment caused by mobility within the labour force—people moving between jobs, switching careers, or relocating geographically. Canadians are constantly moving to different provinces to take advantage of better job opportunities. Throughout much of the 1990s and early 2000s, Ontario’s manufacturers attracted workers from not only Atlantic Canada but some Western provinces. More recently, during the oil boom years, workers packed up and moved from provinces in Eastern Canada, including Ontario, to the West for better job prospects.

Structural shifts in the economy—often the result of technological change—also contribute to some level of unemployment. When, for example, the introduction of computer desktop publishing led to the elimination of traditional typesetting, typesetters lost their jobs. The question is whether displaced workers are able to retrain and re-engage in the labour market quickly. Short-term unemployment created by technological change is a natural part of the economic system. But when technical change cause long-term unemployment or pushes worker out of the labour force, it is extremely damaging.

Does low unemployment ensure a stronger economy?

While low unemployment is certainly preferable to high unemployment, it is nonetheless possible for unemployment to be too low. Regions with extremely low unemployment rates often face labour shortages, wage cost pressures, and other problems. Labour shortages can severely constrain a country’s economic growth and its productive capacity.

Alberta and Saskatchewan faced difficulty finding qualified workers during the oil boom years. With too few workers for the number of jobs, there was upward pressure on wages, pushing some parts of the economy out of the market for new employees. These high wages also drove soaring real estate prices as newcomers from other provinces bid up the prices of the resource provinces’ existing housing stock.

Are there differences in the unemployment rate between men and women in Canada and the provinces?

Canada’s unemployment rate was 6.2 per cent for women in 2016 and 7.7 per cent for men. In every province, the unemployment rate for women was below that for men.

This trend goes back decades in Canada: between 1976 and 1981, the unemployment rate for men was lower than the rate for women, but since 1981 women have had lower unemployment rates. The change reflects structural adjustments in the Canadian economy. Employment in male-dominated manufacturing has declined, because globalization and technological change has resulted in job losses in many manufacturing sectors. At the same time, employment in Canada’s services sector has increased sharply, especially in female-dominated areas, including health care and education.

The divergence in unemployment rates between men and women is especially evident in the Atlantic provinces. In 2016, the biggest gap was in Newfoundland and Labrador, where unemployment was 16.1 per cent for men versus 10.4 per cent for women—a difference of 5.7 percentage points. Male-dominated industries like fisheries—which has been hurt by a decline in fish stocks—and forestry—which has seen pulp and paper mill closures—have struggled for the past couple of decades.

Are the unemployment trends in Canada and the provinces likely to continue?

The past few years have seen some substantial changes in provincial economic trends, and unemployment is no different. Just a few years ago, the Western Canadian provinces of Alberta and Saskatchewan had some of the lowest unemployment rates in the world. The commodity price crash brought these resource-based economies crashing down to earth, with Alberta, in particular, plummeting in the rankings—in the last provincial report card, the province got an A for an unemployment rate of just 4.6 per cent in 2013.

Nonetheless, even before the commodity price crash, it was clear that outside trends would likely lead to the narrowing of the unemployment gap between the resource-rich provinces and the rest of Canada. And now the reverse is true: Alberta and Newfoundland and Labrador have fallen far in the unemployment rankings, but commodity prices will recover somewhat, and their unemployment rates will begin to decline. That suggests a more balanced employment picture in which the resource-rich provinces and the rest of the country converge.

One major wildcard outside Canada's control, however, is its southern neighbour. The policies of the new Trump administration are not fully formed at the time of writing, but some of its stated goals—renegotiating NAFTA and dramatically lowering corporate taxes, for instance—could have negative repercussions for Canada. Anything that weakens Canadian economic growth could drive unemployment up across the country.

Footnotes

1    Noah Smith, “Japan’s Low Unemployment Is Easily Explained,” Noahpinion, August 25, 2011.

2    OECD, OECD Harmonised Unemployment Rates, news release, July 2016.

3    Constance Sorrentino, “International Unemployment Rates: How Comparable Are They?” Bureau of Labor Statistics Monthly Labour Review, June 2000, 8.

4    Ibid.