Labour Market Recovery after Covid in Canada – How broad the reach of it will be is very much an open question

The Canadian labor market experienced a period of unprecedented turmoil following the onset of the COVID-19 pandemic. We analyze the main changes using standard labor force statistics and new data on job postings. Envisaging a phase of temporary severing of employment relationships followed by a phase of more standard labor market search and matching, we use stock and flow data to understand key developments.

The rapid decline in employment, increase in unemployment and fall in labour force participation, especially in March and April 2020, were unprecedented. Furthermore, standard measures of activity that perform well in more normal downturns were less well suited for the unusual pandemic-related circumstances and as a consequence arguably understate the magnitudes of the changes that occurred during the COVID period. The drop in the employment rate would be larger if the large increase in the Employed-Absent category were treated as temporary layoffs rather than employed. Similarly, the increase in unemployment would be larger if the Employed-Absent and the Marginally Attached were classified as unemployed rather than employed and out-of-the-labour force respectively. Finally, the drop in labour force participation is arguably overstated given that the Marginally Attached retained a strong attachment to the labour force during these very unusual circumstances.

Workers who managed to maintain paid employment during the worst part of the COVID- 19 recession tended to work in jobs with higher cognitive skill requirements and lower manual skill requirements (as measured by physical strength requirements). For example, workers in the “Employed paid” group were employed in February in jobs that require around 0.26 standard deviations more quantitative skills than the average of Canadian workers in 2016, and work in jobs requiring more than half a standard deviation greater quantitative skills than workers who end up in unemployed search. This gap is even larger relative to workers in the No Search/Recall and NILF groupings.

Workers who were able to stay in paid employment or had a separation from paid employment at the start of the COVID recession but were able to regain paid employment by June 2020 did not see much change in the quality of their job in terms of measures such as earnings and occupational skill requirements. However, selection issues may influence these results if more capable workers were better able to maintain employment, remain tied to their former workplace, or quickly attain new employment.

Earnings in April 2021 are at least as high as those observed just prior to the COVID downturn.

This paper has documented how the COVID-19 pandemic has buffeted the Canadian Labour Market since early 2020. This downturn has been unusual in many respects, not least in how rapidly the situation evolved. By mid-2021, the pace of change seems to have slowed somewhat, but the situation is still highly unusual.

In particular, the labour market in mid-2021 is characterized by both elevated rates of unemployment and unusually high demand for labour. The high rates of job postings do suggest that the labour market might rapidly rebound in the coming months with rapidly declining rates of non-employment. The notion that labour markets are actually quite tight is also consistent with the observation that wages are rising, even net of selection effects.

However, there are also reasons for concern about how broad based the labour market recovery will be and whether there will be longer-run scarring effects. First, the share of long-term unemployed has rapidly increased. In April 2021, more than 30% of the unemployed have been unemployed in excess of 27 weeks, compared to about 15% prior to the pandemic. It is not clear how easily these unemployed can be incorporated back into the workforce. Second, employment declined proportionally substantially more among workers aged 60 or older; it is doubtful that many of these individuals will return to work again. Third, the recovery has been uneven across the skill distribution. Specifically, although labour demand appears quite strong across occupations and industries, employment has shifted away from occupations requiring physical skills towards occupations requiring interpersonal or quantitative/abstract reasoning skills.

In summary, in July 2021 the labour market overall seems to be poised to continue its recovery, but how broad the reach of this recovery will be is very much an open question.

Chosen excerpts by Job Market Monitor. Read the whole story @  Canadian Labour Market Dynamics During COVID-19 | NBER