Remarks by Tiff Macklem
Governor of the Bank of Canada
Edmonton Chamber of Commerce and
Calgary Chamber of Commerce
February 23, 2021
Edmonton, Alberta
Calgary, Alberta
(via webcast)
Canada's labour market: rebound,
recuperation and restructuring
Introduction
I'm very pleased for the opportunity
to speak to you today-thank you for the
invitation. As much as we are all getting used to these virtual events, I would
greatly prefer to be with you in person to hear your perspectives and concerns
We need to know what's
directly. Your input is important to the Bank of Canada.
happening on the ground in Alberta and across the country.
Fortunately, the Bank has a strong presence in the province. Two years ago, we
opened our financial operations centre in downtown Calgary, which now employs
close to 90 people. And since 1997, we have had staff in our regional offices who
are eager to listen to local business leaders like you. Over the past year, this has
become more critical than ever.
COVID-19 has touched every Canadian in every corner of the country. The
pandemic is, first and foremost, a human tragedy, taking the lives of more than
not
20,000 Canadians, and it's over. It has also led to an economic downturn
unlike anything we've ever seen. Albertans have
been especially hard hit, facing
the double blow of lockdowns and low oil prices.
We have already climbed a long way back from the very deep economic hole we
were in last spring. And with Alberta and much of the rest of Canada emerging
from the latest round of containment measures, we expect a solid rebound in the
immediate months ahead. How much the economy can re-open and the strength
of this rebound will depend on the path of the virus, including the new variants.
But with vaccinations expected to ramp up, we can be more confident in
sustained strong growth through the second half of the year and into next year.
Nevertheless, it will be some time before we see a complete economic recovery.
The Bank's latest forecast doesn't anticipate
economic slack being fully absorbed
until into 2023. COVID-19 has pummelled the service sectors that have been
most affected. Moreover, we are not returning to the same economy we had
before the pandemic. Even as it recovers, the economy is adapting to structural
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changes, and some workers will need to shift to jobs in faster-growing sectors.
This all points to an even more protracted recuperation period while the
economic potential that was lost over the course of the pandemic is rebuilt.
Today, I want to look at the economic recovery through the lens of the labour
market.
For Canadians and their families, few things are more important than a good job.
A healthy labour market means more employment and higher incomes. It also
means greater opportunities for people who have struggled to find work.
For the Bank, a healthy labour market is central to achieving our mandated goal
of low, stable and predictable inflation. Indeed, at its heart, inflation targeting is
about achieving low inflation together with full employment because to
sustainably achieve either, we need both. Without full employment, inflation will
not stay close to its 2 percent target because the shortfall in jobs and incomes
will pull inflation down. And without low inflation and well-anchored inflation
expectations, we are doomed to repeat boom and bust cycles with large
fluctuations in employment.
Today, a healthy labour market remains a long way off. The economy is down
more than 850,000 jobs since the start of the pandemic, with the losses
concentrated among the most vulnerable: low-wage workers, who are
disproportionately women and youth.
In my remarks, I will discuss the prospects for a complete recovery in the labour
market. I will start by reviewing the deep and disparate impacts of the pandemic
on Canadian workers so far. I will then talk about what we can expect in the
months ahead and how the pandemic has sped up the restructuring related to
the forces of digitalization and automation. And I will conclude with a few words
about what these forces mean for everyone-workers, educators, businesses
and, of course, policy-makers. Together, we can manage these forces to the
benefit of Canadians.
A complete recovery is a shared recovery-shared by working women and men
of all ages across Canada. Some ebb and flow in labour market conditions
across regions is inevitable, but all regions need to share in the recovery.
Historically, Alberta has attracted workers from other regions. Prosperity in the
oil patch has created jobs and wealth that were spread across the country.1
Alberta remains a province with tremendous promise, blessed with an
abundance of natural and human resources. Yours is among the most highly
educated populations in Canada, with a great spirit of entrepreneurship. A
healthy and diverse Albertan economy will be important as we work toward
securing a complete recovery.
Deep and disparate job losses
Canada's
At the start of 2020, labour market was in quite good shape. Of course,
we still had pockets of weakness, particularly in energy-intensive regions. But
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overall, we had largely undone the damage caused by the global financial crisis.
The unemployment rate had fallen to near 40-year lows. Participation rates were
increasing for all age groups. Wage growth was rising, and the quality of jobs
was improving.
When COVID-19 arrived in Canada, this all changed very suddenly. In just two
months-March and April-roughly three million jobs disappeared. From
February to May, the unemployment rate went from one of the lowest on record
to one of the highest. If you add to the unemployed those Canadians who wanted
a job but were not actively looking and those workers whose hours were cut by
more than half, almost five million more Canadians did not have the work they
wanted in April last year, compared with February.
COVID-19 has affected everybody, but the impacts have been much more
severe for some economic sectors and their workers. High-contact service
industries-where physical distancing is either difficult or impossible-have been
hammered. At the trough, output in sectors such as accommodation, food
services, arts, entertainment and recreation had shrunk by more than 60 percent,
while air transportation had fallen by more than 95 percent.
Meanwhile, industries where physical distancing or remote work is possible-
such as professional services, finance, and public administration-have been
much better able to adapt. And, of course, essential workers in health care and
working harder than ever, and we're all tremendously grateful to
public safety are
them.
These starkly different effects across sectors have led to very unequal
consequences for workers. Because women and youth hold so many of the jobs
in the hardest hit sectors, they have borne a disproportionate share of the job
losses (Chart 1). For example, young people-those aged 15 to 24-hold about
That's
40 percent of the jobs in the accommodation and food services sectors.
more than three times their share of the labour force. By April, youth employment
had fallen by more than 30 percent.
Chart 1: Women have seen greater losses in employment than men
Change in employment by age and gender, percent, seasonally adjusted
%
0
-10
-20
-30
-40
15-24, men 15-24, women 25-54, men 25-54, women
Change at trough (February 2020 to April 2020) January 2021 vs. February 2020
Change at trough (February 2020 to April 2020) January 2021 vs. February 2020
Sources: Statistics Canada and Bank of Canada calculations
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For families with young children, the closing of schools and daycares has also
had a profound impact on the ability of parents to work. The burden of child care
tends to fall disproportionately on women. From February to May, the
participation rate of women in the labour force declined sharply. And for women
who remained in the labour force, the unemployment rate rose from 5.4 percent
to almost 14 percent.
As the economy reopened in the spring, the plunge in employment reversed
sharply. From May through November, the economy added almost 2.4 million
jobs, recovering about 80 percent of its losses. The rebound also began to
narrow some of the inequalities in the labour market. Women returned to the
labour force, recovering much of the earlier decline in participation. Youth
employment improved modestly, though young women, in particular, continue to
face very challenging labour market conditions (Chart 2).
Unfortunately, in recent months the second wave of the virus interrupted the jobs
recovery. More than a quarter of a million jobs were lost in the past two months,
with the pain again falling disproportionately on women and youth. Women also
began dropping out of the labour market again, partly because in-person
schooling was suspended in many regions.
Another sign of the pandemic's unequal impact is that job losses have been
concentrated among those least able to afford them. Low-wage jobs have been
severely affected by the pandemic (Chart 3). By comparison, employment
outside of low-wage jobs fell more modestly at the start of the pandemic and
recovered quickly, exceeding its pre-pandemic level by September. These jobs
have also proven more resilient to the second wave of the virus, remaining
relatively steady in recent months. This reflects the ability of large parts of the
economy to adapt to the pandemic. In contrast, employment in low-wage jobs
has drifted lower since the summer and is now more than 25 percent below its
pre-pandemic level.
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Finally, as the pandemic has dragged on, we have also seen a sharp rise in the
number of long-term unemployed people-those who have been out of work and
actively looking for a job for longer than 26 weeks. More than half a million
Canadians are now long-term unemployed-the highest in almost 30 years. This
increase mostly reflects the people who lost their job early in the pandemic and
have not yet returned to work. Once again, sectors such as accommodation and
food services made an outsized contribution to the increase in long-term
unemployment.
Recuperation and restructuring
Fortunately, the look forward is better than the look back, though challenges
remain.
With the tightest restrictions being lifted in most parts of the country, we can
expect some bounceback in employment in the near term. And, as with the first
reversal of the pandemic's uneven impact
reopening, we should also see some
in the labour market. The difference coming out of this second wave is that
vaccines now promise a more sustained recovery. Once Canada achieves
widespread vaccination, high-contact service industries should be able to resume
it's
something approaching full operations, resulting in strong job growth. Further,
reasonable to expect that more working mothers will rejoin the labour force as
schools and daycares reopen permanently. It will be important to support this
recovery and facilitate this return to work-a theme I will expand on later.
However, while we can expect to get back to more normal activities, we are not
going back to the same economy we had before. The fourth industrial
revolution-the restructuring caused by digitalization and automation-was
already well underway before the pandemic. And COVID-19 has accelerated it.
Like earlier technological advances, digitalization and automation will bring
important economic benefits through higher productivity and, eventually,
highwage jobs to many in the labour market. Companies will find ways to become
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more efficient and create new types of jobs using innovative technologies. We
have seen this process play out repeatedly, driving progress here in Canada and
around the world.
But deploying new technology can displace existing jobs. Adjusting to these
changes is disruptive, particularly for the people directly involved. And the
process is even more painful if it happens quickly.2
COVID-19 has broadened and accelerated the incentives for businesses to
restructure through automation and digitalization. Businesses are restructuring so
they can deliver goods and services to their customers safely, so their employees
can work remotely, and so they can build resilience and reduce costs. Let me
highlight a few examples.
We have seen a huge rise in e-commerce since the start of the pandemic-at the
expense of bricks-and-mortar stores. In 2020, e-commerce grew a remarkable
69 percent. Retail sales as a whole were up about 4.5 percent in the year. While
we can expect a return to in-store shopping as it becomes safe to do so, the
pandemic has likely permanently advanced the trend toward e-commerce. This
may make shopping more convenient, but it points to a risk that the economy
may need significantly fewer in-store retail workers than it did before the
pandemic.
COVID-19 has also led to a massive increase in remote work. Statistics Canada
reports that almost 5.5 million Canadians are now working remotely-that's more
than one-quarter of the labour force. Many employers and employees have also
become a lot more flexible about work arrangements, and businesses
everywhere are reconsidering the future of work.3 This will have implications for
the amount and types of space companies need and the demand for
transportation, food and other services in the downtown cores of major cities.
At the same time, these forces may make it easier for more people to work. I
don't
want to minimize the challenges that remote work can pose and the
difficulties it has meant for some people. But many workers are delighted to save
time and money by giving up a long daily commute. The possibility of remote
work may also help some businesses and workers overcome the challenges
posed by geography. For some jobs, remote work could improve matching
between employers and employees, resulting in a stronger labour market and
higher productivity.
The trend toward digitalization suggests that the demand for workers with digital
skills will continue to rise. Bank staff analyzed online job postings over the past
year and found that postings for jobs related to the digital economy declined by
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less and recovered by more than postings for other types of positions.4 By this
measure, job postings for workers with digital skills are now well above
prepandemic levels (Chart 4).
At the same time, some of the jobs that have been lost during the pandemic will
not return. And the workers who have already borne the brunt of the pandemic
may be especially affected. Many low-wage jobs have a high potential of being
automated. And some jobs that are disproportionally held by women and youth,
such as retail salesperson and cashier, are also the kinds of jobs where the
pandemic has accelerated structural change.
We know that restructuring would be underway even without the pandemic. In
the long run, the forces of digitalization and automation will be positive for the
labour market, creating more flexibility and increasing productivity and wages.
But in the near term, these forces will do little to help the people who have been
most affected by the pandemic.5 And as long as some groups are struggling, we
won't secure
a complete, shared economic recovery.
Policy implications
The stakes are high for everyone. We have seen a sharp rise in long-term
unemployment. And people who go for a long time without a job can become
discouraged and stop looking for work altogether. Economists call this
labourmarket scarring.
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can set people's
Labour-market scarring careers back by years and severely limit
their lifetime earnings. Scarring also reduces the potential output of the economy,
eroding its ability to grow without creating unwanted inflationary pressure. As a
result, uneven outcomes that hurt some lead to poorer outcomes for everyone.
We all have a shared responsibility to get Canadians back to work, to manage
the forces of digitalization and automation, and to reduce the risks of
labourmarket scarring.
For workers, being in a position to take advantage of the opportunities is crucial.
Not all the jobs in the most-affected sectors will return when the pandemic is
So, it's worth
over. it for everyone to think about where their interests lie and the
skills and training needed to pursue them.
Digital skills will likely be in high demand. Technology is no longer a discrete
Bank's
sector, it's in every sector. The latest Business Outlook Survey indicates
that companies are ramping up investments in digitalization. As the recovery
progresses, the need for people with digital skills who can leverage these
investments will likely intensify.
The shift toward remote work can also represent an important opportunity for
workers. Technology and increased flexibility can make it possible for people to
fill jobs that were previously out of reach because of time or distance. For
example, a person in Medicine Hat might not even think about a great position if
it means moving to Mississauga or Moncton. But in certain sectors, remote work
can make it possible to take that job.
New digital technologies are transforming the education system itself, allowing
learning to be delivered virtually. This could potentially broaden access to
teaching and expand capacity, especially in high-demand areas such as data
science, engineering, software development and business analytics. But the
issue is far broader. Universities and colleges need to build in digital skills across
all disciplines. Primary and secondary schools also need greater emphasis on
This isn't about training children for
digital literacy. particular jobs. This is about
preparing children for a digital future, where they will need to master digital skills
in whatever career they choose.
Companies also have a critical role to play in training. After all, employers are
best placed to know what skills they are looking for in their employees. New
virtual formats mean businesses can train many more workers at a lower cost.
Some businesses are supplementing formal training with reverse-mentoring
programs, where younger, digitally savvy workers are paired with older, more
experienced workers. And businesses can reduce scarring by seeing the
potential in the person behind the resumé, not the gaps in it. Many young
workers who entered the labour force during the pandemic have struggled to find
work through no fault of their own.
Governments are playing a leading role in supporting workers. Emergency relief
measures are replacing incomes from jobs lost, and wage subsidies are keeping
businesses and workers connected. Strengthening the social safety net for
families, particularly by increasing access to child care and reducing its cost, will
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help more women return to the labour force and remain there.6 As the labour
market rebounds and restructures at the same time, reducing the risk of scarring
points to the importance of active labour market policies-policies that improve
matching and give more people better access to good jobs.7
The Bank is supporting spending in the economy and helping facilitate
investments in workers and other forms of capital by keeping borrowing costs low
for households and businesses. With a complete recovery still a long way off,
monetary policy will need to provide stimulus for a considerable period. We have
committed to keeping our policy interest rate at the effective lower bound until
economic slack is absorbed so that our inflation target is sustainably achieved.
And we have backed up this commitment with our program of large-scale
government bond purchases.
in everyone's interest.
A complete recovery-a shared recovery-is A shared
recovery is self-reinforcing. It draws more workers into the labour force. It leads
to more investment. It generates more potential growth. And it creates space for
the economy to expand faster without building inflationary pressure.
Canada's labour market
I began this speech by highlighting the health of before
the pandemic. Unemployment had been around 40-year lows for a couple of
years. Based on past economic cycles, we would have expected inflationary
to rise. But inflation wasn't
pressure to begin threatening to take off. As the
pandemic recedes and the recovery continues, we will keep that experience in
mind. Monetary policy can continue to support demand in order to minimize
scarring and bring as many people into the work force as possible.
Conclusion
It's time for me to conclude.
The COVID-19 pandemic has taken a tremendous toll here and around the
world, in lives and livelihoods lost. And it has disproportionately affected
highcontact service-sector jobs that many women and youth occupy.
As Canada achieves widespread vaccinations, we expect the economy to
rebound, and many of these jobs will return. But we are not going back to the
same economy we had before. Some businesses and some jobs will not return
either because of permanent changes in demand or the adoption of new
technologies. So, we can expect a long adjustment process and a protracted
recovery. The economy will need support for quite some time, and the Bank will
continue to do its part.
monetary policy alone can't
But bring about a complete recovery. We all have a
role to play to ensure the recovery is broad-based and sustained, with the
benefits shared widely. This highlights the importance of targeted public policies,
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businesses that invest in workers, and an education system that develops the
skills needed in the 21st century. I look forward to working together to bring about
this shared recovery. Thank you.