COVID-19’s Impact on the Canadian Labour Market

Executive Summary

This paper analyzes COVID-19’s impact on the Canadian labour market by comparing important Canadian COVID-19 dates to various labour market indicators, including employment safety nets; full, part-time, and employment levels; participation rate, and labour force; frictional, structural, and cyclical unemployment; and unemployment rate. This analysis finds that several Canadian Government employment safety nets like Canada Emergency Response Benefit (CERB), Canada Emergency Business Account (CEBA), and Canada Emergency Wage Subsidy (CEWS) have positively contributed to labour market indicators and heterogeneous effects within provincial, sectoral, and demographic groups.

Overview of COVID-19 and the Canadian Labour Market

The Beginning: On December 29, 2019, local hospitals reported four pneumonia cases with unknown etiology in Hubei, China (Kantis et al., 2020). On January 25, a Canadian husband and wife returned to Canada from Wuhan, Hubei. This husband and wife were the first two confirmed Canadian COVID-19 cases on January 27 (Bronca, 2020). From December 2019 to February 2020, Canadian real GDP^[1] and the unemployment rate remained steady. Real GDP increased monthly from 1.987 trillion in December 2019 to 1.989 trillion in January 2020 and again to 1.994 trillion in February 2020. The Canadian unemployment rate^[2] decreased from 5.6% in December 2019 to 5.5% in January 2020 and then increased back to 5.6% in February 2020 (Statistics Canada, 2020c: 2020d: 2020e). These steady levels were unsteadied once the first wave hit full stride in March 2020.

First Wave: Categorized from March 1, 2020 to July 16, 2020, Canadian COVID-19 active cases increased dramatically from 20 on March 1, 2020 to 27,601 on July 16, 2020 (Dunham, 2020; Worldometer, 2021). Within this four-and-a-half-month timeframe, CERB was released on March 25, the RCMP invoked the Quarantine Act on April 10, CEBA and CEWS were passed on April 11, and the Canada Emergency Student Benefit (CESB) was passed on May 1 (Figure 1; Quarantine Act, 2020).  The Canadian labour market suffered during these COVID-19 public health and policy response efforts (Jones et al., 2020). The Canadian labour market experienced substantial declines during this timeframe. The unemployment rate increased from February 2020’s 5.6% to 7.8% in March, to 13% in April and again to 13.7% in June before starting its decline to 12.3% in June and 10.9% in July 2020 (Figure 2; Statistics Canada, 2020c: 2020d: 2020e).

Second Wave: Marked from July 17 to the present, Canadian COVID-19 active cases decreased to 4,141 on July 17 and have been slowly increasing since, now at 52,458 on February 1, 2021 (Worldometer, 2021). In response to COVID-19 case levels, in late 2020, Canada eased several quarantine restrictions, such as school and restaurant reopenings, and international and domestic travel availability (Doolittle et al., 2020). These quarantine relaxations contributed to increased COVID-19 active cases and decreased unemployment rates, moving from 10.9% in July to 10.2% in August and 9% in September 2020^[3] (Statistics Canada, 2020d: 2020e). Much of the unemployment rate decrease may be attributed to the various Government of Canada policy efforts and their impact on additional labour market indicators (Figure 2; Lemieux et al., 2020).

Breakdown of COVID-19’s Effects on the Canadian Labour Market

This section analyzes various Canadian employment safety nets in relation to COVID-19 events and their relationship to several labour market indicators.

Employment Safety Nets: The Canadian Government has released several employment safety nets in response to the negative impact COVID-19 has had – and continues to have on the Canadian labour market. On March 25, 2020, the Canadian Government passed the COVID-19 Emergency Response Act (COVID-19 Emergency Response Act, 2020). This act included CERB, which provided a taxable benefit of $2,000 per month for a maximum of seven months to eligible workers who either stopped working or had their work hours reduced from COVID-19 (Department of Finance, 2020).

Shortly after, on April 11, 2020, Prime Minister Justin Trudeau passed the COVID-19 Emergency Response Act, No. 2 (COVID-19 Emergency Response Act, 2020). This additional legislation included both CEBA and CEWS (COVID-19 Emergency Response Act, 2020). CEBA provides interest-free loans up to $40,000 to small businesses and not-for-profits to cover their operating costs during COVID-19 (Department of Finance, 2020). CEWS has the Canadian Government cover a portion of employee wages to rehire and avoid layoffs from the economic downturn (Department of Finance, 2020). Each employment safety net implemented has positively impacted Canadian labour market indicators such as full-time, part-time, and employment levels; participation rate and labour force; and frictional, structural, and cyclical unemployment.

Full-time, part-time, and employment level: Full-time employment refers to working 30+ hours per week, while part-time employment refers to working less than 30 hours per week. These labour market indicators are closely related to the employment level, which is the employed members of the labour force, from December 2019 to September 2020 (Figure 3). The steep decline seen from February 2020 to April 2020 happened just as the first wave came into full stride as schools, businesses, and government shut-down. Similarly, the gradual increase seen from April 2020 onward is in-line with various employment insurance packages like CERB, CEBA, CEWS, and CESB. Despite COVID-19’s second wave, employment levels and full and part-time employment have almost returned to pre-COVID-19 levels. The observed relationship between various employment safety net implementation and employment levels increases may not be absolute, but they have at least some positive influence on the Canadian labour market.

Participation rate and labour force: The Canadian labour participation rate, the fraction of working-age people in the labour force, experienced similar declines and inclines as the full-time, part-time, and employment levels (Figure 4). From February 2020 to April 2020, the participation rate decreased from 65.5% to 59.8% before returning to 65% in September 2020. The labour force^[4] had a proportional experience, decreasing from 20,323.20 in February to 18,603.20 in April 2020 before returning to 20,302.50 in September 2020, just above its February 2020 numbers (Statistics Canada, 2020d: 2020e). The Canadian Government’s employment safety nets: CERB, CEBA, and CEWS each started either during or at the bottom of the labour market indicator declines. Shortly after these employment safety nets started, the participation rate and labor force slowly returned to pre-COVID-19 levels.

Frictional unemployment: Frictional unemployment arises as workers search for suitable jobs and firms search for suitable workers (Abel et al., 2014). Since COVID-19’s first wave, several firms can no longer afford their employees, forcing several thousand employees to re-enter the labour force and search for a suitable firm (Beland et al., 2020; Chan et al., 2020; Larue, 2020). Conversely, since firms have less money to employ workers, firms become more selective in their hiring. This imbalance forces less skilled, educated, and experienced workers to the bottom of hiring competitions, leading to increased structural unemployment.

Structural unemployment: Structural unemployment is the long-term and chronic unemployment arising from imbalances between the skills, education, and experience of workers and firms’ needs (Abel et al., 2014). Since low-skilled jobs are typically not long-term, these workers often come in and out of unemployment. This unemployment type has grown from COVID-19’s impact on the Canadian labour market. The chronic unemployment portion of structural unemployment will linger for several years as demand shifts from in-person to online-related skills (Deng et al., 2020; Gallacher & Hossain, 2020; Jeon & Ostrovsky, 2020b). Those without online-related skills will remain uncompetitive until those skills are gained (Lord, 2020).

Cyclical unemployment: Cyclical unemployment is the positive or negative difference between the unemployment and natural unemployment rate (Abel et al., 2014). From January 2020 to May 2020 the Canadian unemployment rate increased from 5.6% to 13.7%, an increase of 8.1% (Statistics Canada, 2020a: 2020e: 2020f). This unemployment rate increase creates positive cyclical employment as the sharp unemployment incline is greater than the natural rate of unemployment. While COVID-19 does not have an end in sight, the Canadian Government’s various employment safety nets have helped reduce the unemployment rate (Figure 2). Hopefully, if the Canadian Government continues to stabilize the economy, Canada can move from a positive to a negative cyclical unemployment rate. This continued work must be aimed at several heterogeneous groups to ensure “no Canadian is left behind” (Canadian Press, 2020b; Justin Trudeau, 2020).

Heterogeneity

This section analyzes the different Canadian provincial^[5], sectoral, and demographic labour market impacts of COVID-19.

Provincial: While COVID-19 has negatively affected the entire Canadian labour market, some provinces have experienced greater negative effects than others (Figure 5). Most Canadian provinces remain at a relatively similar unemployment rate, except for Newfoundland and Labrador, whose unemployment rate is anywhere from 1.5 to 2.5 times that of the other provinces. However, Newfoundland and Labrador experienced similar COVID-19 unemployment rate shifts as most other provinces (Figure 5).

Quebec and Alberta experienced the greatest unemployment rate increases. This difference may be from COVID-19’s rapid spread in Montreal, Quebec City, and Gatineau, putting several thousand more people out of work than other major cities. Quebec’s unemployment rate jumped from 4.5% in February 2020 to 17% in April 2020, a 12.5% increase (Figure 5). At the same time, Alberta is projected to experience a 6.8% GDP decline, which, following Okun’s law^[6], would call for a roughly 2.27% unemployment rate increase for the year. However, Alberta’s unemployment rate has risen from 7% in December 2019 to 15.5% in May and June 2020, an 8.5% increase, more than double the Conference Board of Canada’s initial projection (Conference Board of Canada, 2020). While Quebec and Alberta are experiencing higher unemployment rates than other provinces, some sectors within these two provinces are facing harsher impacts.

Sectoral: Within Alberta, the forestry, fishing, mining, quarrying, oil and gas sector is the biggest contributor to Alberta’s GDP output (Statista, 2019a^[7]). This sector experienced declines like all other mentioned indicators from February 2020 to April 2020. However, as Alberta’s overall employment levels started increasing in May 2020, the forestry, fishing, mining, quarrying, oil and gas sector did not (Figure 6). This sector continued to decline until June 2020 until it saw an increase in July 2020 before declining again in August 2020. The sector’s recovery has been far slower than Alberta’s overall employment rate, signifying a combination of poor adaptations to COVID-19 working conditions and decreases in demand for these goods and services.

In Quebec, the manufacturing sector is the greatest contributor to Quebec’s GDP output (Statista, 2020b). Quebec’s manufacturing sector has experienced similar declines and recoveries compared to their overall employment levels, seeing a decline from March 2020 to April 2020 and then a continued slow recovery (Figure 7). Compared to Alberta, Quebec’s largest GDP contributing sector adapted to COVID-19, despite the close human proximity required by both sectors: Alberta’s being in mines, oil rigs, etc., and Quebec’s manufacturing factories and plants.

Demographic: Human well-being is unmeasured by Statistics Canada or Statista. Since COVID-19’s first wave, thousands of Canadians are now working from home, doing online schooling, having reduced office staff, or are without work. Each of these changes has contributed to higher stress levels, increased suicide and depression rates, displacement of foreign workers, and self-employment efforts to offset the unemployment rate increases (Jeon & Ostrovsky, 2020a; Lu, 2020; Statistics Canada, 2020b; Tam et al., 2020). While only a few research articles have explored these changes, the Canadian Government has focused most of its policy efforts on recovering the economy, maybe rightfully so, but some Canadians are being left behind because of it.

Limitations

1. There is little COVID-19 academic literature, whereas government documents are more readily available. This disparity is not necessarily bad, but there is far less rigour, and few citations. Political bias is also easily spotted in some of the government documents.
2. Employment data is challenging to find for recent months. As COVID-19 continues and more data is gathered and released, this paper’s information will become outdated and hold less weight.
3. Labour market indicators, much like GDP, do not measure or capture human well-being. Of the published COVID-19 academic literature, much discusses increased suicide, depression, stress, and crime rates (Deady et al., 2020; St-Denis, 2020). Not many articles focus on the labour market. Simultaneously, almost all publicly available data is on economic indicators like the GDP and labour market.

Conclusion

The Canadian labour market has seen consistent sharp declines in full-time, part-time, and employment levels; participation rate, and labour force; and Okun’s law from February 2020 to April 2020. This sharp decline then slowly recovers across each mentioned labour market indicator from April 2020 to September 2020^[8] (Figures 1-4). The sharp increase in unemployment rates have contributed to increased frictional and structural unemployment as firms are becoming more selective with their limited financial resources, and more people are searching for suitable firms. These sharp unemployment rate increases are higher in Alberta and Quebec. Both provinces see sharper and more sustained unemployment rate increases than the other provinces (Figure 5). Each of Alberta and Quebec’s sector that contributes most to GDP output felt almost identical impacts. The exception is Alberta’s forestry, fishing, mining, quarrying, oil and gas sector; it has yet to show signs of recovery, remaining below April 2020’s sharp decline (Figure 6 and 7).

While each indicator mentioned above has measured a sharp decline and steady recovery (aside from Alberta’s sector), human well-being is not measured or addressed. Working and attending school from home, dealing with unemployment and a more competitive job market have increased people’s stress levels, depression and suicide rates, and displaced foreign workers (Jeon & Ostrovsky, 2020a; Lu, 2020; Statistics Canada, 2020b; Tam et al., 2020). With no end in sight, the COVID-19 pandemic will continue to negatively impact the Canadian labour market and Canadians for several more months, maybe even years.

Benjamin Faveri is a Master of Public Policy and Administration student at Carleton University. He has received SSHRC, OGS, the Social Innovation Graduate Fellowship, and several other scholarships and awards to support his research. He holds undergraduate degrees in Criminology and Psychology and Certificates in Global Entrepreneurship and Foreign Intelligence Assessment. He works on research projects surrounding: jury decision-making; Canadian police body-worn camera data governance policy; and private artificial intelligence governance.

Banner image by James Yarema, courtesy of Unsplash.

Footnotes