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Canada – Why the labour market is already back to normal

The Labour Force Survey release for August was typical of LFS releases since the recession ended three years ago: modestly good news, but not enough to put a serious dent in the unemployment rate. When will things get back to normal?

The answer is “things are already back to normal.” Canadian unemployment rates simply don’t fall quickly back to pre-recession levels during a recovery (click on the graphs to open a larger version in a new window):

To understand why unemployment jumps up quickly but declines slowly requires looking at the dynamics of the labour market.

There are two things to consider when thinking about fluctuations in employment: hires and separations (i.e. layoffs plus quits). Hires represent the flows of workers employment, and separations are the flows out of employment: the changes in the levels of employment are the differences between inflows and outflows:

Changes in employment = Hires – Separations

The number of people employed is best thought of as a bathtub with a continual flow of hires pouring in the top and a continual flow of separations draining out the bottom. If the inflow in is greater than the outflow, the bathtub fills up. If the flow out of the drain is greater than the inflow, then the bathtub empties…


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