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Postmortem: One of Tiff Macklem’s favourite economic indicators just turned positive

One of the gauges that Macklem has said is important is full-time employment, which provides information about the quality of employment. As the chart below shows (vertical axis, right-hand side), there still is some ground to cover: a shortfall of about 150,000 positions remains, not counting the jobs that would have been created if the economy hadn’t suffered an epic recession.

Much of the hiring in August was by restaurants, which were released from strict COVID-19 restrictions over the summer. That appears to be helping to narrow a gap that has been troubling the central bank. Younger workers were left behind by the recovery, as many of them worked in high-touch services that were barred from reopening until a critical mass of the population was vaccinated. But now that eateries, stores, and hotels are (mostly) back in business, there are lots of jobs on offer than don’t require years of experience or a fancy degree. The chart below tracks the rate of change in the level of employment from February 2020. The kids have finally caught the oldsters. 

The kids might be all right, but low-wage workers aren’t. The COVID-19 recession exposed how unevenly opportunity spreads in the modern economy. Many of the wealthiest workers barely noticed the crisis, at least in terms of their paycheques. Engineers, coders, bankers, consultants and the like carried on working, only from home instead of at the office. Their numbers have even grown over the last year as companies rush to catch up to the digital economy.

But so far, their good fortune has been slow to trickle down to those at the bottom of the pay ladder. The Bank of Canada took note of that in its revised policy statement, suggesting that the trajectory of interest rates will depend on how quickly low-wage workers find their way off the sidelines. That particular gauge on Macklem’s dashboard still is flashing red.

Macklem has made no secret of his willingness to court a little inflation if he sees evidence that the risk is being rewarded by a faster-than-usual return to a healthy labour market.

Many economists think stimulus was unwound too quickly after the Great Recession. Inflation was never really a threat, and executives and investors were still too beaten up to power a strong recovery on their own. The result was a decade of disappointment.

Weak growth leaves workers stranded. The longer they remain without jobs, the harder it becomes to find new ones because their skills erode. Economists call this phenomenon “scarring” and Macklem has stated repeatedly that he intends to fight it.

As the chart below shows, the ranks of the long-term unemployed have been dropping significantly in recent months. The problem is that the number still remains uncomfortably high. About 29 per cent of the total number of unemployed workers had been without a job for more than six months in August, a slight improvement from the recent peak, but otherwise a level that hasn’t been seen since the 1990s. The COVID crisis will leave scars. Monetary policy for the next couple of years will be based on keeping them from becoming too deep.   

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