Fraser Forum

Unemployment rate doesn’t tell full story of Ontario’s economy

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According to Statistics Canada, Ontario’s unemployment rate dropped to 5.8 per cent in April, its lowest level since January 2001. The drop puts Ontario well below the national average, which shrank by 0.2 percentage points to 6.5 per cent last month—its lowest point since the recession of 2008.

This is positive news for the Ontario economy, which is currently expecting relatively strong economic growth for 2017.

While it’s encouraging to see that there are some green shoots, it’s important to keep these recent positive developments in perspective and to recognize the depth of economic pain across Ontario in recent years.

Ontario is hopefully emerging from what has been a very long period of weak economic performance. Between 2003 and 2014, the province averaged a real per person economic growth of just 0.3 per cent, compared to the Canadian average of 1.1 per cent in the same time frame.

It’s going to take more than a few quarters, or even a few years, of robust economic growth to repair the economic damage that’s been done in some regions of the province.

But even these anemic overall economic growth numbers don’t tell the full story. In fact, outside of the Greater Golden Horseshoe (especially Toronto) and Ottawa, labour market performance has been extremely weak since the 2008/09 recession. In fact, as of the end of 2015, total employment in Ontario outside of the Greater Golden Horseshoe had still not recovered to pre-recession levels. Consider the following facts:

• Southwestern Ontario’s large manufacturing sector was devastated by the 2008/09 recession, and the recovery since has generally been tepid. On average, employment grew at just 0.4 per cent annually between 2010 and 2015. This is a sluggish recovery, especially considering the depth and severity of the 2008/09 recession.

• Employment growth was even weaker in Eastern Ontario, excluding Ottawa. In fact, it was negative. Between 2010 and 2015, Eastern Ontario suffered a 0.6 per cent average annual loss in net employment growth.

• Northern Ontario also experienced negative employment growth over the 2010-2015 period. Annual employment growth averaged negative 0.2 per cent during this period of economic recovery in Ontario.

It’s important to pay attention to labour market indicators such as the employment rate and labour force participation rate because the oft-cited unemployment rate provides an incomplete picture of labour market performance. Reductions in the unemployment rate can be driven either by people looking for work and finding it (which is good) or by people suspending their job search altogether out of frustration (which is bad). Once people stop looking for work, they are no longer counted among the unemployed.

Indeed, this phenomenon seems to be playing a role in Ontario right now. Statistics Canada reports that this month’s drop in Ontario’s unemployment rate was “mostly due to a decline in the number of youth searching for work.” So while it’s true that economic growth and labour market performance in Ontario have ticked up over the past year, it’s important to pay attention to a wide range of indicators and regional variation.

The severe recession in 2008/09 battered the provincial economy, and the recovery in the years immediately following was tepid. Again, it’s encouraging to see green shoots for the provincial economy, but it’s important to recognize that a prolonged period of weak economic growth has caused a lot of economic pain. It will therefore require an extended period of economic growth and strong labour market performance for Ontario to retake its historical status as one of Canada’s strongest provincial economies.
 

 

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