Recession Not Damaging Job Quality by Benjamin Tal

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1 Canadian Employment Quality Index April 15, 2009 Economics Recession Not Damaging Job Quality by Benjamin Tal Avery Shenfeld (416) Benjamin Tal (416) Peter Buchanan (416) Meny Grauman (416) Krishen Rangasamy (416) Yes, the pool of jobs in the economy is shrinking, but the quality of existing jobs remains surprisingly stable. The Canadian labour market is falling at a rate not seen since the 12 recession. Over the past six months the Canadian economy lost no less than 356,000 jobs or 2.1% of total employment. On a three-month movingaverage basis, employment is now falling by 0.5% a month a rate not seen since June 12 (Chart 1). The unemployment rate is rising quickly, and in the process eroding the bargaining power of labour, with the pace of wage gains slowing notably over the past few months. This bleak picture, however, masks a positive story that is well hidden behind the gloomy headlines. Yes, the pool of jobs in the economy is shrinking, but the quality of existing jobs remains surprisingly stable (Chart 2). This relative stability is in sharp contrast to previous recessions where the quality of the job pool sank alongside its size. Chart 1 Canadian Employment Falling Fast m/m % chg, 3-mo moving average EQI is Surprisingly Stable Our Employment Quality Index (EQI), which combines information on the distribution of part-time vs. full-time jobs; self-employment vs. paid employment; and the compensation ranking of full-time paid employment jobs in more than industry groups, was virtually unchanged over the past six months. Since October of 2008 total employment has fallen by 2.1% while our employment quality index has softened by a trivial 0.2% (Chart 3). The relative stability of employment quality during the current recession is at odds with not only the pace of job losses in the economy, but also the trajectory seen during previous recessions. During the 1991 recession, the 3% drop in overall employment coincided with a 7.7% drop in the quality of employment. The Canadian experience this time around is also very different than the Chart 2 CIBC Employment Quality Index Index 19= CIBC World Markets Inc. PO Box 500, 161 Bay Street, Brookfield Place, Toronto, Canada M5J 2S8 WGEC1 (416) C I B C W o r l d M a r k e t s C o r p M a d i s o n A v e n u e, N e w Yo r k, N Y ( ) , ( )

2 situation in the US, where the quality of employment has fallen by 6.4% over the past year and by 4.2% in just half a year (Chart 4). Digging Deeper What s behind the relative resiliency of the quality of employment in Canada? Interestingly, full-time employment fell dramatically over the past year, while part-time employment rose by a dazzling 3.5% with most of the gain coming during the past six months (Chart 5). So clearly, the full-time/part-time job distribution is a negative for our index. Another negative is the distribution of paid vs. selfemployment. In fact, over the past year paid-employment has fallen by 2.1% while self-employment has risen by 1.5%. Since October 2008, self-employment has remained constant, while paid employment has fallen by 2.4% (Chart 6). Given that on average, the self-employed earn less than 80% the income of paid employees, this trend worked as an additional negative from a quality perspective. So, what has kept our quality index from sinking over the past six months has been a relatively favourable wage distribution of full-time paid-employment. To be sure, Chart 3 Employment Down, Quality Stable Chart 4 Employment Quality Index Canada vs. US Index Jan 2006= Index Dec 2006= Dec 06 Mar 07 Jun Sep Dec Mar 08 Jun Sep Dec Mar 09 Employment C IBC Employment Quality Index Canada US Chart 5 Part-Time vs. Full-Time Jobs Chart 6 Self-Employed vs. Paid Employees Index Jan 2003= Index Jan 2003= Part-Time Full-Time Part-Time Full-Time Self- Employed Paid Employees 114 Self-Employed Paid Employees 2

3 the number of high and low-paying jobs fell dramatically over the past six months, but the damage was more pronounced among low-paying jobs. The number of fulltime paid employees in low-paying jobs such as gasoline station operators, real estate, textile and accommodation services fell by 2.5% over the past year. At the same time, the number of jobs in high-paying sectors such as mining, petroleum and coal manufacturing, farm products, beverage and tobacco manufacturing and public sector fell by less than 2% (Chart 7). The fact that the drop in high-paying jobs was not as significant as among lowpaying jobs worked to improve the quality distribution of the existing labour pool, and was sufficient to fully offset the negative impacts of rising part-time and selfemployment jobs. A quick glance at the regional picture of job quality suggests that the stability of our index from a national perspective also masks some notable differences among the provinces. Western Canada is clearly showing the fastest rate of deterioration in the quality of employment, reflecting economies that are rapidly losing momentum. In Ontario, growth in the quality of employment is now in negative territory, but only to a limited degree despite Chart 7 Full-Time Paid Employment -3.0 Low-Paying Sectors High- Paying Sectors Index Jan 2003= Low-Paying Sectors High-Paying Sectors the massive job loss in the manufacturing sector. At the same time, the quality of employment in Quebec and Atlantic Canada is still rising. Armed with this information, we can now speculate about the underlying forces behind the surprising stability of our quality index in the midst of one of the most difficult recessions in the post-war era. One reason behind the fact that employment in low-paying sectors is falling faster than in high-paying ones is the significant decline in employment among young Canadians. Total employment among workers age fell by no less than 4.2% over the past year and by 2.9% over the past six months alone. And since many of these young workers are in sectors or occupations that earn less than the average wage, this trend worked as a positive for the quality measure. But the main reason for the relative stability of our index during the current cycle is the role of women in the labour force. It is well documented that the employment rate among women has risen dramatically over the past decade. But just as important is the fact that more women are working in high-quality occupations. For example, the number of women in professional occupations in business and finance has risen by no less than 50% over the past decade more than double the rate seen among men. Ditto for many other sectors such as the public sector and the social sciences. And so far, women are faring much better than men during this recession, with total employment among women hardly changed over the past year vs. a 3.3% drop among men. And the fact that many of these women hold relatively high quality jobs was an important factor behind the resiliency of our quality index. There is no shortage of bad economic news coming from all directions, including the Canadian labour market, which will continue to deteriorate in the coming months. But the relative stability of our employment quality index suggests that when the labour market turns a corner, job gains will translate into income gains much more quickly than they have in the past, as the base of the existing labour pool is of a higher quality when compared to previous recessions.

4 CIBCWM Employment Quality Index by Province British Columbia Alberta Index 19= Index 19= Manitoba/Saskatchewan Index 19= Ontario Index 19= Quebec Index 19= Atlantic Index 19=

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Canadian. An Island of Stability by Benjamin Tal. Economics & Strategy. January 28, 2008

Canadian. An Island of Stability by Benjamin Tal. Economics & Strategy. January 28, 2008 Canadian Employment Quality Index January 28, 2008 Economics & Strategy Jeffrey Rubin (416) 5-7357 jeff.rubin@cibc.ca Avery Shenfeld (416) 5-7356 avery.shenfeld@cibc.ca Benjamin Tal (416) 956-36 benjamin.tal@cibc.ca