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Canada's Unemployment Problem*

Published online by Cambridge University Press:  07 November 2014

Clarence L. Barber
Clarence L. Barber*
Affiliation:
University of Manitoba
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Extract

Canada's unemployment record during the post-war period falls readily into three distinct periods. Before 1954 unemployment averaged about 2.5 per cent of the labour force and was never a significant problem. Since it has been estimated that seasonal unemployment alone amounts to about 2 per cent of the labour force, non-seasonal employment was almost non-existent in this period. During the next four years a moderate increase occurred and in this period unemployment averaged about 4.2 per cent. Then, in late 1957, unemployment passed the 5 per cent point; for the three years 1958 to 1960 it averaged 6.7 per cent of the labour force and in early 1961 it has been running close to 8 per cent on a seasonally adjusted basis. The moderate increase that occurred after 1953 was due in part to a more rapid growth of the labour force. In two years, between 1955 and 1957, the labour force increased some 6.9 per cent and the non-agricultural sector rose by more than 9.5 per cent, an increase that reflected the heavy immigration following Suez and the uprising in Hungary. But the further increase in unemployment that developed in late 1957 cannot be attributed to a similar cause. For since 1957 there has been some decline in the rate of growth of both the total and the non-farm labour force (see Table III). Nevertheless, the non-farm labour force has continued to grow rapidly and this explains the recent paradox of increasing unemployment at a time when total employment is still rising.

Type
Articles
Information
Canadian Journal of Economics and Political Science/Revue canadienne de economiques et science politique , Volume 28 , Issue 1 , February 1962 , pp. 88 - 102
Copyright
Copyright © Canadian Political Science Association 1962

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Footnotes

*

This is a revised version of a paper presented to the Canadian Political Science Association in Montreal, June 8, 1961. Shortly thereafter, in his budget speech, Mr. Fleming presented an analysis of the current unemployment problem which led to conclusions similar to those reached in this paper, and announced the government's intention of using the exchange stabilization fund to secure an immediate reduction in the value of the Canadian dollar, pending the working of longer-term measures designed to secure a reduction in capital inflows. Revisions have been made to take account of this major change in government policy.

References

1 An alternative view is that there has been an upward trend in unemployment for eight or ten years. But it is difficult to find any eviednce of a trend prior to 1954 and much of the change since then may be due to special circumstances. See, however, Bank of Canada, Annual Report, 1960, 1–10.Google Scholar

2 See testimony of Dr. Gil Shonning, Special Committee of the Senate on Manpower and Employment, Proceedings (Ottawa, 1961), no. 16, 1071–101.Google Scholar

3 Some allowance was made in these estimates for the exceptionally large grain crop of 1956. The recorded growth for the period ending in 1956 is even higher than 5 per cent.

4 Because labour force participation rates are appreciably higher in the United States it could be argued that a given level of unemployment represents a more serious loss of welfare in Canada than it does in the United States. Thus, some 58 per cent of the non-institutional population 14 years of age and over are in the labour force or the armed forces in the United States compared with only 55 per cent in Canada.

5 No attempt has been made to estimate the size of these relations in detail. However, it may be noted that with a multiplier of 2.5 a reduction of the current account deficit by one half would produce an increase in gross national product of $1.5 billion. Employment of an additional 200,000 at the average productivity of the period would have produced about $1.2 billion. A larger margin than this would have been needed to take care of the rise in productivity which is often rapid when the economy is taking up slack, but induced investment should have been adequate to balance this factor.

6 Government surplus as a percentage of gross national product declined as follows:

Data on government surplus are as given in the National Accounts.

7 In his presentation to the Senate Committee on Manpower and Employment, Professor Hood argued that because in terms of current dollars imports as a percentage of gross national product have shown a downward trend since 1951, an increase in import competition cannot be blamed for our current difficulties. But surely in terms of competition with Canadian production it is the volume of imports that is significant. Data in current dollars conceal the fact that import prices have risen a good deal less than domestic prices since 1949. Moreover, Hood's evidence that for chiefly and fully manufactured goods imports have exceeded exports by upwards of $2 billion since 1956 supports the view that import competition has increased. See Proceedings, no. 2, 103, 120–25, and 154–7.

8 For data in constant dollars as a percentage of gross national product, the following pattern prevailed: for exports: 1949–54, 23.7; 1956–57, 22.5; 1958–60, 22.6; for imports: 1949–54, 24.6; 1956–57, 27.9; 1958–60, 26.8.

9 Over the period 1949 to 1960 total business capital formation less net capital inflow as a percentage of gross national product varied as follows:

10 In their Final Report, the Senate Committee argue that measures “aimed directly or indirectly at stimulating investment are likely to have much greater immediate effect than measures” designed to readjust the economy to a lesser dependence on a high rate of capital investment. But they do not advance any evidence in support of this conclusion and they completely neglect the foreign debt implications of their argument. See Final Report of the Special Committee of the Senate on Manpower and Employment (Ottawa, 1961), 28.Google Scholar

11 See Bank of Canada, Annual Report, 1960, 96.Google Scholar

12 On a twenty-year bond issue an interest saving of one per cent provides a total saving over the life of the issue equal to 20 per cent of its capital value. This will offset an appreciable loss through exchange depreciation. Moreover, if the provinces and municipalities had taken Mr. Coyne's advice and shifted a significant amount of borrowing from New York to Toronto, the interest differential might have widened further.

13 The widening of interest differentials has sometimes been attributed to the fact that since 1957 government deficits in Canada have been larger in relation to national income than those in the United States. This argument implies that yields on government bonds and in some degree the general level of interest rates is strongly influenced by the share of total funds in the capital market that are acquired by the government. It seems likely that a more important cause of the widening of interest differentials was the government's conversion programme which, in addition to increasing uncertainty among Canadian investors, substantially reduced the liquidity of their holdings, thus giving them an incentive to increase their holdings of cash.

14 Some allowance should be included in the Canadian data for the active portion of notice deposits. However, for some unexplained reason, the Bank of Canada no longer publishes this series. On the other hand, if the money supply had been calculated as a percentage of final domestic expenditure the 1960 ratios for Canada would each have been one per cent lower. Neither of these adjustments significantly affects the conclusions drawn from the data.

15 For the fifteen countries demand deposits and currency as a percentage of national income for 1958 were as follows: United States, 39; Canada, 25; Switzerland, 58; New Zealand, 31; United Kingdom, 32; Australia, 33; Sweden, 20; Denmark, 32; Norway, 31; Belgium, 52; France, 42; Iceland, 25; Netherlands, 33; Venezuela, 23; Western Germany, 24. Countries are listed in order of per capital income in 1953. Percentages were calculated from data given in UNO, Monthly Bulletin of Statistics, 03, 1961.Google Scholar

16 To make such a measure effective some renegotiation of Canada's tax treaties with the United States would be required. Otherwise the increase in Canadian tax rates could be offset against taxes owing to the United States government.

17 See Marsh, D. B., “Keeping the Dollar at Fixed Parity Could be Costly,” Financial Post, 06 24, 1961, 35.Google Scholar

18 This view was advanced most explicitly by Dr. W. Donald Wood. See his testimony, Proceedings, no. 16, 1035–66.

19 Ibid., no. 4, 243.

20 Ninth Census of Canada, 1951, X, 233.Google Scholar

21 For males in the age group 14 to 19 years civilian labour force participation rates have declined from 55.9 per cent in 1950 to 42.8 per cent in 1960. It should also be noted that unemployment among men and women under 20 was a slightly smaller percentage of total unemployment in 1960 than it had been in the period 1950–54. See Proceedings, no. 1, 41, and Final Report, no. 25, 61.

22 Proceedings, no. 16, 1038–9.

23 Ibid., no. 16, 1041.

24 Ibld., no. 6, 329–55.

25 Final Report, 61.

26 See note to Table 2.

27 Canada has been fortunate in having been able to move so much labour out of agriculture during a period when native-born additions to the labour force were abnormally low.

By 1960 a 20 per cent decline in the agricultural labour force would increase the non-agricultural labour force by about 2.4 per cent. In 1950 the same 20 per cent decline would have added a full 5 per cent to the non-agricultural labour force.

28 Two of these, Yugoslavia and the Philippines, are countries in which agriculture still accounts for a large part of the total labour force; and the other three, Western Germany, Austria and Japan, are all countries which have experienced a substantial rise in manufacturing employment since 1953. The index of non-agricultural employment for 1959 in each of the eighteen countries on a 1953 base is as follows: Australia, 113; Austria, 121; Belgium, 104; Canada, 118; France, 105; Federal Republic of Germany, 128; Hungary, 112; Japan, 140; Luxembourg, 114; New Zealand, 117; Norway, 106; Phillippines, 121; Poland, 118; Puerto Rico, 112; Union of South Africa, 113; United Kingdom, 105; United States, 108; and Yugoslavia, 148. Data are as given in the Monthly Bulletin of Statistics, 03, 1961.Google Scholar

29 If the Hood-Scott assumption about net immigration were combined with Denton's labour force participation ratios an appreciably higher result would be obtained. Denton's forecast, which is the higher of the two, assumes net immigration of from 5,000 to 50,000 per annum, much below the net inflow of 50,000 to 100,000 assumed by Hood and Scott. The lower level of net immigration in Denton's estimate is offset by his appreciably higher labour force participation ratios for women. The latter are based on a projection of the experience of the last five years. Further, because a sharp acceleration in the rate of growth of the labour force is in prospect for the United States also, it seems likely that there will be some decline in the outflow of Canadians as competition for jobs in the American labour market becomes keener. Then too, the outflow from agriculture may be larger than Denton has estimated. While his estimate seems reasonable there is very little accurate data on which to base an informed estimate in this area.

30 See Solow, R. M., “A Contribution to the Theory of Economic Growth,” Quarterly Journal of Economics, LXX, 1956, 65–94.CrossRefGoogle Scholar

31 See the discussion of this point in Ackley, G., Macro-Economic Theory (New York, 1961), 536–49.Google Scholar

32 See Hamberg, D., Economic Growth and Instability (New York, 1956), 147–192.Google Scholar

33 Ibid., 159.

34 The report on this topic prepared for the Royal Commission on Canada's Economic Prospects fails to stress the key significance of the rate of release of workers as a result of technical progress. See Probable Effects of Increasing Mechanization in Industry (Ottawa, 1956).Google Scholar