Fraser Forum

Job numbers prove economy never sleeps

Printer-friendly version

Anyone paying attention to Canada's current federal election campaign has heard—dozens of times—that the Canadian economy either was or was not in a recession in the first half of this year.

Whether it really was or not, economists probably won’t decide for another two or three years when all the numbers are in. And even then, since it appears to have been close, they may well continue to disagree.

When you’re in a recession, one of the key signs is that employment is either stagnant or falling. To hear the news anchors, in an economy in recession nothing—or even less than nothing—is happening. In fact, as a new data series from Statistics Canada makes clear, even in a slowdown the economy is never at rest. The series, which is still in the experimental stage, uses payroll tax data to try to figure out how many firms enter and exit the economy every quarter and what the associated job gains and losses are.

If we really were in recession earlier this year, the first quarter is when the worst of it happened. Even so, the series shows, new businesses were entering at a rate that would have produced 140,000 of them if it had been sustained for the full year. That’s adding to a total of just over 1.1 million firms in total, so it represents growth of just about 13 per cent—this during the quarter in which we had the slowest growth of economic output in a while. Hope evidently springs eternal (and a good thing it does!) even if the total of new firms entering was down slightly from the previous quarter.

As you might guess, however, there were also lots of businesses exiting in the first quarter—122,830 of them at an annual rate. Unlike entries, exits were up a bit in the first quarter, and their relative buoyancy (if that’s a term you can use to describe firms that were foundering) is symptomatic of a slowdown, especially when taken together with the small reduction in entries.

What job gains and losses did all this entering and exiting involve? According to the experimental data, the number of jobs associated with exiting firms jumped from 144,790 in the fourth quarter of 2014 to 217,590 in the first quarter of 2015 (again expressed at annual rates). Surprisingly, perhaps, the number of jobs associated with firms entering rose, too, from 195,540 to 199,210. Despite that increase, the overall effect on jobs was negative in the first quarter. And yet even in the worst of what may turn out to have been a recession, new firms provided almost 200,000 jobs.

These weren’t the only effects on jobs in Canada. The great majority of firms that neither died nor were born in the first quarter may also have added or eliminated jobs, though this series doesn’t incorporate them. As is always the case with a new data series, the exact numbers I’ve quoted are likely to change as the series is refined. (The technical document describing how it’s all put together runs to 18 single-spaced pages.) But the overall message almost certainly won’t change. Sometimes the “creative” part of “creative destruction” is a little stronger. And sometimes the “destruction” part is a little stronger. But no matter how becalmed the economy may look, deeper down those currents are always flowing strong.

Blog Category: 

Subscribe to the Fraser Institute

Get the latest news from the Fraser Institute on the latest research studies, news and events.