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Canada’s ‘roaring’ recovery is not as robust as it seems

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One of the major questions of the pandemic-induced recession was about the magnitude and mix of the subsequent economic recovery. Would it be a U-shaped recovery? Or a W-shaped recovery? Or an L-shaped recovery? And where would the jobs come from? Which sectors would ultimately drive the recovery? 

That Canada’s economy fully restored the jobs lost during the pandemic by late 2021 seemed to answer these questions. Headlines and commentaries declared that “Canada’s pandemic jobs recovery has been remarkable” and  “Canada’s labour market bounces back.” 

The Trudeau government was even more affirmative: its 2021 economic and fiscal update, for instance, boasted that the economy was “roaring back” based on recouping 106 percent of the jobs lost during the pandemic.Chapter 2: The Road to Recovery https://budget.gc.ca/efu-meb/2021/report-rapport/chap2-en.html 

Yet these top-level claims require a deeper dive into what’s really behind Canada’s post-pandemic recovery. The data tell us a less favourable story than the prevailing narrative in the media or from the government. Much of Canada’s post-pandemic jobs recovery—indeed, nearly 85 percent since February 2020—has actually been concentrated in the public sector. We have experienced a G-shaped recovery: a government-centric recovery.  

Start with Statistics Canada’s latest monthly jobs report.Employment by class of worker, monthly, seasonally adjusted and unadjusted, last 5 months (x 1,000) https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=1410028801 (New data, including for the month of June, will be released on July 8). As Chart 1 shows, Canada’s labour market has indeed recovered jobs lost after the onset of the pandemic. 

Specifically, overall employment reached 19.297 million in November 2021, surpassing the pre-pandemic employment level of 19.143 million in February 2020. As of May 2022, the latest month of currently available data, total employment was 19.640 million or 2.6 percent higher than in February 2020, the month before the pandemic shook the country’s job market. 

Graphic credit: Janice Nelson

Yet Chart 2 breaks out total employment into three components: public sector employment, private sector employment, and self-employment. This disaggregation of the employment data is notable for three reasons: 

  1. The pandemic-induced drop in public-sector employment (red line) was much less severe compared to the private sector (blue line)—6 percent versus approximately 22 percent. This was to be somewhat expected because lockdowns disproportionately affected businesses that had to temporarily shut down or scaled back operations while the need for certain front-line public sector workers such as nurses and other health-care professionals remained unchanged. 
  1. Public sector employment recovered much more quickly. It took just seven months for public sector employment to reach or surpass its February 2020 levels. Private-sector employment, by contrast, took much longer to recover, requiring 20 months to reach its pre-pandemic levels. 
  1. Self-employment is still below its pre-pandemic level and has yet to recover. 
Graphic credit: Janice Nelson

The ongoing discrepancy between the public and private sectors is heightened if one adds the self-employed to private-sector workers. Chart 3 shows that total private sector employment (including self-employment) took 24 months to surpass its February 2020 level—more than three times the duration for the public sector. 

Graphic credit: Janice Nelson

Another way to show these compositional employment trends is to compare job growth in the public and private sectors in relative and absolute terms. Table 1 summarizes the change in employment levels for each sector from February 2020 to May 2022. Public sector jobs have grown by 418,400 (or 10.7 percent) since February 2020. Total private sector employment (including the self-employed) has only grown by 78,300 or 0.5 percent higher. 

Put differently, of the net increase in total employment over the period (496,700), 84.2 percent of the incremental jobs were in the public sector while only 15.8 percent were in the private sector. As a result, Canada now has a greater share of its workers employed by the public sector than did prior to the pandemic: 22.0 percent in May 2022 versus 20.3 percent in February 2020.

Graphic credit: Janice Nelson

Why does this matter? 

As a starting point, it paints a different picture of the labour market’s recovery than is commonly understood. Were it not for a significant spike in public sector employment at a time of unprecedented public spending and borrowing, the government’s rosy narrative about the economy “roaring back” would be replaced by legitimate concerns about a jobless recovery. 

Yet, with a greater share of public-sector jobs compared prior to the pandemic, one might question the sustainability of Canada’s labour market rebound. As the federal and provincial governments aim to deal with their large-scale deficits and debt, is it possible to sustain more and more public sector jobs?  

Of course, some of the recent growth in public sector jobs may reflect a temporary spike in response to the pandemic. Yet it’s worth recognizing that, compared to February 2020, 121,000 (or nearly a quarter of the 418,400 incremental public-sector jobs) are classified as “public administration.” This suggests that a considerable share of these new hires isn’t necessarily on the front lines of the pandemic response and cannot be characterized as merely COVID contingent. 

Controlling public spending and reducing deficits on one hand, and sustaining the country’s jobs recovery through deficit-financed public-sector hiring, on the other hand, is a major challenge for Canadian governments that has gone under-discussed because of the tendency to focus on the top-line employment numbers. It may prove to be the public policy equivalent of jumping a chasm in two bounds that will expose the country’s weak labour market as public spending is curtailed. 

The timid recovery of private-sector jobs is important to recognize here. That only 15 percent of job growth relative to February 2020 is in the private sector is a worrying sign about the underlying robustness of Canada’s economy. A G-shaped recovery can mistakenly seem like a U-shaped recovery. 

More fundamentally, though, there’s a political economy dynamic that policymakers ought to be more cognizant of. The significant expansion of the government’s payroll—particularly for non-COVID front-line related work—during a period when the self-employed and other private-sector workers have faced job precarity and even lay-offs, seems to fail a basic fairness test. There’s something inherently unfair about adding to the long-term tax burden of businesses and households that have already been saddled with government-mandated shutdowns, pay cuts, job losses, and now rising inflation. 

This unfairness risks exacerbating the nascent divide between what Globe and Mail columnist John Ibbitson has described as “the public class, who live on the avails of taxation, and the private class, who pay the taxes.” We risk ending up with something like the old “makers” versus “takers” debate, which, though a highly imperfect way to think about the economy and society, may find new resonance with small business owners and precarious private-sector workers. 

This divide was already notable prior to the pandemic. Consider, for instance, that after falling by 7.6 percent between 2011 and 2015, the number of federal public servants increased by 16 percent between 2016 and 2020.Population of the federal public service by department https://www.canada.ca/en/treasury-board-secretariat/services/innovation/human-resources-statistics/population-federal-public-service-department.html Private sector employment (including self-employed workers), by contrast, grew by just 1.9 percent over the same period.

It’s not just differences in hiring rates either. Research by the Fraser Institute (and others) consistently finds a wage premium for public-sector workers in Canada. Even after controlling for factors like gender, age, marital status, and education level, Fraser Institute scholars estimated a 9.4 percent wage premium, on average, for public-sector workers over their private sector counterparts in 2018.Comparing Government and Private Sector Compensation in Canada, 2020 https://www.fraserinstitute.org/studies/comparing-government-and-private-sector-compensation-in-canada-2020 Adjusting for the relative levels of unionization still produces a wage differential of about 6 percent.

The overall compensation gap is far greater when one accounts for non-wage benefits such as pension and health benefits, job security, and typical retirement age. Just consider, for instance, that 87.7 percent of public-sector workers are covered by registered pension plans, compared to just 22.5 percent of private-sector workers.

Rising inflation is bound to exacerbate these differences. Public-sector unions are increasingly calling for large wage increases to account for inflation while many small business owners and other private-sector workers struggle to keep up with rising prices without cost of living adjustments. 

The key point here is that the growing divide in the experiences of public and private sector workers in Canada (which we’ve previously written about at The Hub) risks creating a new fault line in Canadian politics and society. It’s a fissure that’s bound to become even wider in the future as government spending becomes more unsustainable and the private economy is further held back by labour shortages. 

The long-term outcome could be a new political consciousness based on one’s membership in the public class (which earns more, has better benefits, and greater job security) or the private class (which faces more precarious work, fewer benefits, and less security). 

The lasting effects of our G-shaped recovery, in other words, may be felt less in an economic sense and more in our political life. It’s important therefore that we start to take notice of what’s actually happening before it is too late.

From Syria to Antigonish, Tareq Hadhad’s journey has a sweet ending

News

Any sweet-toothed Canadians looking for some patriotic treats for this year’s Canada Day celebration could do worse than the Go Canada Go bars sold by Nova Scotia’s Peace By Chocolate.

The bar sports a Canada flag wrapper with the slogan “Go Canada Go” emblazoned on the top. Inside the milk chocolate treat is a maple cream filling. Even the most red-blooded, flag-waving, hockey-watching Canadian might think it’s a little over the top.

But for Tareq Hadhad, a Syrian refugee who fled his country’s civil war to Antigonish, Nova Scotia, and quickly set up a family-run chocolate shop, the message perfectly reflects his own feelings.

“Whenever someone eats one of our chocolates, I think they’ll become proud Canadians to think how great this country is that opens the doors for us,” said Hadhad, on Thursday’s episode of the Hub Dialogues.

Hadhad’s story of going from refugee to massively successful chocolatier has been turned into a feature film, entitled Peace By Chocolate, which premiered last year in Canada after appearing at the Tribeca Film Festival in New York.

To say the Hadhad family’s life has been cinematically harrowing could be an understatement. In 2010, Hadhad’s father was making ambitious plans for his Syria-based chocolate company and, by 2012, the company’s factory was destroyed by an airstrike. His extended family was soon scattered around the globe, in 26 different countries, as they joined the millions of refugees fleeing the war.

“The whole experience of becoming a refugee was (that) we did not know what tomorrow is going to bring us,” said Hadhad. “We did not know what the future is holding for our family, and we did not know if we will get that chance to immigrate, or if we can go back to our homeland. There was so much uncertainty, so much adversity.”

Hadhad arrived in Antigonish in 2016 and agonized over whether he should pursue a medical career, before eventually deciding to reopen the family’s chocolate business. Peace By Chocolate has been a smashing success, shipping products globally, opening a new location in Halifax, and raising money for causes close to the family’s heart.

In 2018, when Peace By Chocolate was experiencing its first, modest success the company donated some proceeds to the Canadian Red Cross’s wildfire relief efforts in Fort McMurray. Hadhad also sees the company’s job creation in Nova Scotia as another way to give back to his new home and to counter the idea that refugees won’t contribute to the community.

“That’s why the movie, for example, has conflict within the family and conflict within the community, and how people, sometimes, have fears against newcomers, and then all the fears dissolve after newcomers prove themselves that they are here as givers and not takers,” said Hadhad.

Hadhad and his family particularly wanted to give back to the small community in Antigonish that had sponsored them as refugees through the Private Sponsorship of Refugees program.

That PSR was a pioneering innovation when it was created in 1979 in response to the arrival of Vietnamese refugees to Canada. The program proved to be a remarkable success and, after only six months in existence, 5,457 groups across Canada had applied to sponsor refugees. For every privately sponsored refugee under the PSR program, the government matches this by sponsoring a refugee themselves. The program has been pivotal in giving Canada a refugee program that is internationally recognized as fair and generous.

Hadhad said that before he arrived in Canada he knew it as a welcoming country that had taken in refugees from Vietnam, Iraq, and Rwanda, among others. Hadhad said he knew Canada as a country of immigrants, dedicated to continuously building the country in the same way that immigrants before them had.

“I think we were very similar to a lot of former immigrants in that we believed we have to be laser-focused on our mission. We have to be laser-focused on building a Canada that is better for our kids, leaving this country better for our kids and grandkids than we found it,” said Hadhad.

In building a better country, Hadhad believes there are few better ways to do it than providing a steady supply of chocolate, whether it’s a patriotic chocolate bar or not.

“Everyone who eats chocolate would be happy. No one who eats chocolate will ever be sad,” said Hadhad.

“We wanted to do something remarkable, something unique, and that’s when he realized that chocolate is the best path. It was the product that makes everyone happy.”