The Broadbent Blog


Youth unemployment and Canada's jobless non-recovery

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When Bank of Canada Governor Stephen Poloz commented recently that unemployed youth can advance their careers by volunteering their services instead of expecting to be paid, he inadvertently unleashed a firestorm of criticism.

At the same time, he was merely giving voice to a rather obvious fact confronting younger job-seekers. 

As they emerge with huge student debts into a labour market where good jobs are scarce and competition is fierce, they have weak bargaining power. Available service-sector jobs—involving part-time, short-term work for which they may be over-qualified—may help to pay their bills but not to build their careers. Unpaid work involving their skill-sets at organizations that should really pay them may actually be a better career choice. Unfortunately this is easier for those who can afford to work gratis, and who are typically those with wealthier and supportive parents.

The reality is that for the past six years the economic crisis has had profoundly undermined the job market around the world. According to the International Labour Organization, the crisis has opened up a “global jobs gap”: the rate of job creation will fall steadily behind the number of new job entrants by 2.6 million jobs per year over the next five years. Young people just entering the job market are affected disproportionately. The unemployment rate for youth at 13.1 percent globally is almost three times that of adult unemployment worldwide.

The current “non-recovery” has also undermined employment in a number of other disturbing ways. Long-term unemployment, with average duration of 6 months or longer, is affecting an increasing proportion of the unemployed. Long spells of unemployment significantly reduce the employability of job-seekers. Even in the U.S., where recovery seems to be slightly more vigorous, long-term unemployment affects 40 percent of job-seekers.

In addition, the labour force participation rate has fallen, suggesting that some discouraged job-seekers are dropping out of the market entirely. Some may do so to pursue further studies, but others may simply be “unofficially unemployed”. The result of these trends around the world, according to the ILO, is the growth of vulnerable employment (self-employment or working for family members), informal employment, and working poverty.

It is hardly surprising, in view of all these retrograde developments in the job market, that inequality is increasing. It will only increase more if the advice of Mr.Poloz to offer their services for nothing is heeded by unemployed youth—which many are in fact doing.

It gets worse. The nature of the job market has changed profoundly, due to policies over the past three decades promoting “labour market flexibility”. This term is code for undermining the power of unions to bargain collectively, reducing the scope for full-time, long-term positions, and not increasing minimum wages, among other things.

Globalization has played a major role in this transformation, as jobs are off-shored to markets with lower wages and benefits, and through initiatives like the discredited Temporary Foreign Worker Program. So has technology, to the extent that it eliminates more jobs than it creates. Other factors include the abolition of mandatory retirement, which reduces the scope for hiring young workers as highly-paid older workers retain their jobs into their seventies.

Together, such measures favour employers and older workers, and reduce younger workers’ bargaining power and their wages. Increasingly, employment opportunities are dominated by short-term, part-time jobs without benefits or employment security: creating what some have termed the growing “precariat” class.

Is there a way out of this “jobless non-recovery”? Perhaps the place to start is with a more robust recovery. As discussed in an earlier blog, macroeconomic policy, particularly in advanced economies including Canada, is dysfunctionally unbalanced, with a combination of loose monetary policy and tight fiscal policy. After six years, it is evident that loose monetary policy is not stimulating recovery and may largely be fuelling stock market, real estate and other asset prices. It is difficult to envisage a more robust recovery taking place without a more vigorous fiscal policy—for example, by investment in physical and social infrastructure.

But to make the recovery more “job-friendly”, additional measures will be required. Specifically, active labour market policies will be required by governments to address inactivity, skills degradation and obsolescence, particularly in advanced economies such as Canada. The ILO estimates that if OECD countries were to double the proportion of GDP spent on such measures from 0.6 percent in 2011 to 1.2 percent, an additional 3.9 million jobs could be created.

However, to recommend “active labour market policies” is to understate the enormity of the problem facing Canada and most developed countries. We need to roll back the legacy of “flexible labour markets” which are at the root of the problem. Public policies and public-sector initiatives by themselves are unlikely to achieve much. To recover a labour market in which good, well-paying jobs with benefits and employment security are the norm rather than the exception will require sustained and substantial efforts on the part of the private sector, which is the locus of most employment.

In turn, to induce the private sector to embrace such a scenario will require employers to favour long-term objectives such as employee loyalty and a stable work force over short-term profit maximization. This will not be easy in an environment in which corporate success is measured by quarterly performance of shares in the stock market.

What is urgently needed is a dialogue between policy-makers, private sector employers and young workers to address these issues. The stakes are huge—not only for younger workers, but for the future of our society.

Roy Culpeper is the former President of the North-South Institute and currently a Broadbent Policy Fellow and Senior Fellow at the University of Ottawa’s School of International Development and Global Studies.

Photo: francisco_osorio. Used under a Creative Commons BY 2.0 licence.