Five adjustments that should underlie policy thinking in the coming weeks
By: Danielle Goldfarb
This piece was originally published by First Policy Response on May 14, 2020.
Last week’s Canadian jobs report headline of 13 per cent unemployment and two million jobs lost in April confirms what we all know instinctively: there has been a dramatic shock to the labour market and the economy.
Perhaps more important than these numbers is what wasn’t in the headlines, or in the jobs report itself. The impact runs much deeper than the headline unemployment and job loss numbers. Here are five adjustments that should underlie policy thinking in the days and weeks ahead:
1. Add 5 percentage points to the headline unemployment rate. A staggering almost 1 in 5 Canadians who want to work, can’t. Statistics Canada reported in the fine print that the April unemployment rate would be 5 percentage points higher when you add those who didn’t have a job but didn’t actively look for work, presumably because there was no point to looking for non-existent jobs. The same is true in the United States, where the Bureau of Labor Statistics reported that unemployment would be 19 per cent rather than 14 per cent when you include those who aren’t actively looking.
2. Look at what’s happening today. The May 8 jobs report reflects what happened in the week of April 12-18. It provides deep insight into what happened during that time, but it is a rear-view picture. As we now head into various phases of reopening across Canada, what matters is what is happening now as activity restarts. Has the hemorrhaging stopped? At RIWI, we ask more than 1,000 randomly engaged Canadians about their working status on a continuous basis every week. Consistently, between April 18 and May 14, about 1 in 5 reported being unemployed. Things appear not to be worsening further, at least not yet.
3. Look at what happens to incomes, not only jobs. This is because asking people if they had a job last week, as the official measures do, does not capture the full range of ways in which people earn money today, including those that drive for Uber or sell freelance services on TaskRabbit. We are in the midst of the first major economic shock to hit Canada since digital platform gig work became possible. RIWI data on income loss show that as of May 13, more than 1 in 3 Canadians — and almost half of Canadians aged 25-34 — have lost half or more of their income. Statistics Canada reports that more than one-third of the potential labour force did not work, or worked less than half of their usual hours, in April. In short, the jobs data alone understate the true extent of the income loss Canadians are experiencing. They also underline how crucial the Canada Emergency Response Benefit is in sustaining incomes in this stage of the crisis. In the days ahead, we will need to monitor changes to income and hours — not just jobs.
4. Think at least as much about psychology as about actual economic conditions. As the economy reopens, will Canadians feel safe going to work or out to a restaurant? Will parents feel comfortable sending their kids to school and camps? Will Canadians hesitate to spend if they believe this crisis will be deeper and longer-lasting than the conditions suggest? Behavioural fear is the X-factor in this (or any) crisis. We need to measure this fear reliably, and in real time — it could change during different phases of the pandemic. If we don’t measure behaviour and attitudes well, we can’t model it in our forecasts, or address it in policymaking. (At RIWI, we are measuring many of these psychological impacts on a daily basis and globally and will be reporting on them in the reopening phases.)
5. Prepare for secondary economic shocks. Many government income supports have now kicked in, and many unemployed Canadians expect to be rehired in the months ahead. But what happens once government support winds down and if businesses do not reopen and rehire their workers? Economist Frances Donald calls this the “economic second wave.” The upcoming Statistics Canada jobs reports will cover these impacts in the rear-view, but policymakers need to monitor them in real-time, and plan for them, even if they don’t materialize or are less severe than expected.
Statistics Canada is now in the field with its May Labour Force Survey. But that jobs report, when it comes out in June, won’t tell us about the economic recovery and reopening period we are about to enter now. We’ll learn about that only in July. That’s too late: for policymakers to adjust their policies in line with what’s happening on the ground, they will need a close, almost daily watch of the full range of psychological and economic impacts in the next four to six weeks, and as they change throughout the next phases of this crisis.