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Friday, January 06, 2006
The Canadian Economy Loses Jobs:
probably a good thing
The Trono Globe and Mail is reporting that Canada had 2100 fewer jobs in December than in November and that the unemployment rate rose from 6.3% to 6.5%.
The Canadian economy unexpectedly shed 2,100 jobs in December... . The unemployment rate rose a notch to 6.5 per cent, as more people entered the work force looking for jobs, Statistics Canada said Friday. In November, the rate fell to its lowest in more than three decades.
As I wrote back in May,
My estimate is that the Canadian natural unemployment rate is between 7.1% and 7.4%, but it is almost certainly not less than 7%.
I wondered then how Canada could avoid sustained inflationary pressures without raising interest rates, which, indeed, the Bank of Canada did throughout the summer and fall. This article in the G&M confirms that even though the unemployment rate rose in December,
economists said the disappointing headline won't dissuade the Bank of Canada from raising interest rates later this month.
Let me make clear that this is one economist who does not see this headline as disappointing. Rather, I see it as a sign that the Canadian economy is continuing its relatively smooth adjustment to having been slightly over-heated for the past year or two; with any luck, we will be able to avoid serious inflation without having to slide very far up along the short-run Phillips curve [named for its discoverer, Professor Curve] (i.e. without having much of an increase in unemployment as we adjust to and close in on longer term equilibria, shown as a vertical line labeled "NAIRU" in the Wikipedia entry for the Phillips Curve).
Posted by EclectEcon on January 6, 2006 | Permalink
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probably a good thing:
Comments
Nice Blog :)
www.FriendsterForum.com
Posted by: FriendsterForum.com | 2006-01-06 9:48:00 AM
I'm not an economist and don't have the stats, but my questions regarding this are:
a. where were jobs being shed/lost (Ont/Que)? and
b. if the economy is being driven by Alberta & BC and there is no labour, its relative strength to other sectors will still cause pressures on the economy (due to the impact that the energy sector has on all other sectors of the economy (no sector can operate without energy, which as it rises in cost, reduces profit in other sectors).
Thus, if AB can't find workers, wages go up and inflation plays a greater role than the negative impact of job losses in another sector of the economy.
Wage increases in the tight labour market + energy cost increases in production + energy costs increases to the public - wage losses from unemployment = high(er) inflation.
I think that we need the details of where the cuts are and what is the status in the tight labour markets (where Wal-Mart now pays $9.00/hr in Alberta starting).
2006 should be an interesting year!
Ed the Hun
Posted by: EdtheHun | 2006-01-06 9:57:40 AM
This blog raises a good point. The natural rate of unemployment for the Canadian economy is 7%. Why the hell is there normally so much unemployment in the Canadian economy?
EXCESSIVE UNEMPLOYMENT AND WELFARE BENEFITS THAT DISCOURAGE PEOPLE FROM GETTING OFF THEIR A**ES AND WORKING FOR A LIVING!
Posted by: Ace | 2006-01-06 10:40:02 AM
Did anybody read the CBC piece on who could replace the leaders of the Libs or Conservatives after the next election? Monte Solberg made the list of people without a profile! What a great party we'd be if Monte was the leader. I sure hope he is the next leader of the party.
Posted by: Andrew | 2006-01-06 12:10:41 PM
Now Martin is in real trouble...He just lost "his" one and only "acheivement record" (Or so he claims): The robust employment rate...I wonder of their war room have any money left to modify their TV ads now? He.He.He!
Sing with me: NAH...NAH...NAH.NAH...HEY...HEY...HEY.GOO.OODBYE!(Libranos)
Posted by: metalguru | 2006-01-06 12:43:58 PM
Every good Keynesian knows that a healthy unemployment rate is good for the controlled economy of a socialist state who issues fiat tender as a public debt. Hell, if there was full employment we would get all decadent-like and unruly with the confidence of our own productivity and start expanding the economy...next thing ya know we're asking for tax reductions and there goes the Fed's ability to remove all that nasty working currency from circulation....then we'll get real uppity and demand a return to the gold standard after full employment causes the fiat money systems to keep more and more of its worthless currency in circulation to the point where a fully employed citizenry resent taking a wheel barrows full of 20s to the grocery store....next they'll want their guns back to defend themselves from our other centrally controlled social experiments who run about with illegal glocks robbing them of the car-loads of cash fully employed fait money users have....nawwww full employment is a baaaaaad thing ;-)
Posted by: WLMackenzie redux | 2006-01-06 12:47:21 PM
I'm no economist either. So I'll defer to what Ludwig von Mises had to say back in 1922. Seems relevant still.
"The friends of trade unionism and of the policy of unemployment doles honestly believe that there is no way to ensure the maintenance of fair conditions of life for the masses other than the policy of the trade unions. They do not see that in the long run all efforts to raise wages above a level corresponding to the market reflection of the marginal productivity of the labour concerned must lead to unemployment, and that in the long run unemployment doles can have no other effect than the perpetuation of unemployment."
In Canada it seems that this combination of factors leads to a natural permanent rate of about 7% unemployment.
Posted by: JR | 2006-01-06 12:57:10 PM
Sorry, I missed part two to my earlier point. If the net effects of the job losses don't negatively impact inflation across the country, then the central bank will have no choice but to raise rates, even if there is a reduction in the labour market across the entire country.
I just wouldn't want to be one of those unemployed or underemployed Easterners since they will be hit VERY HARD by interest rate hikes and increased energy costs. It will certainly take up any spare change that folks may have sitting around, or result in a cutback of discretionary funding. And boy, when people can't afford toys to play with they get really angry. And finally, the Canadian consumer is already maxed out on its borrowing. The cost to administer this debt will only grow.
Ed the Hun
Posted by: EdtheHun | 2006-01-06 12:58:48 PM
Have to disagree with the the generalization that the natural unemployment rate is approx.7% and that these new numbers indicate that inflation pressures are easing.
There isn't a region in the country that is anywhere near it. In BC and AB it is 4% or less, while in the Atlantic provinces the rural unemployment rate is well into double digits. So, while the National average is approaching the natural rate, inflationary wage pressures are enormous in some regions and they are not even remotely being addressed by the migration of people in from high unemployment areas - the incentives of easily accessed EI and Welfare are too high to stimulate movement. But, when it comes to wages, a rising tide lifts all boats. Witness the upward movemnt in wage scales for AB nurses and their impact on nurse's wages in high unemployment juristictions.
Posted by: Gord Tulk | 2006-01-06 1:10:04 PM
It doesn't take any arcane knowledge of economics, or a great effort poring over statistics, to figure out that the idea of "natural unemployment" is complete crap.
Imagine a small, desert island, called the "Bananada Atoll", which has only three people living on it: Crusoe, Friday, and um, Monday. The three castaways spend every day working together gathering coconuts so they can eat. Monday always helps Crusoe climb up on his shoulders, so that Crusoe can pick the coconuts and throw them down to Friday, and Friday picks them up and carries them to their hut. But one day, a strange wooden structure washes ashore, obviously carried thousands of miles by the current. This structure has two long poles, held together with a series of shorter poles, and Crusoe discovers that this is the perfect thing for climbing trees. Monday is out of a job.
If Bananada had a free market, then Monday would soon busy himself catching fish, collecting berries, repairing the hut, etc., in exchange for coconuts collected by Crusoe and Friday, and everyone would enjoy a much better standard of living. But Bananada is not that kind of island. Friday announces to Monday, "You are the victim of struct-u-ral unemployment, which my economist (his name for the hollow coconut he had recently started talking to) says is quite natural when an economy is changing because of technology. From now on, you don't have to work any more. Crusoe here is going to give you just as many coconuts as he did before, and I, in my new job, which I will call 'the government', will collect the coconuts from him and give them to you. And I will beat him to a pulp if he doesn't. Of course, I must receive an even larger share of the coconuts than either of you, because, hey - if you want to have the best people working in 'government', you better be willing to pay for it."
So Crusoe found that he had to work a lot harder than he ever did before, and at the end of the day he had a lot fewer coconuts than he did before. Everybody had a lot fewer coconuts than before, and their hut got more leaks because no one felt like fixing it, and Crusoe would grumble sometimes because when he came back late in the evening after a long day collecting coconuts, the other two had grabbed the best places to sleep in the hut. But Friday looked him right in the eye and said, "Buster, this is what makes Bananada such a special place, because on this island, WE CARE FOR PEOPLE."
Posted by: Justzumgai | 2006-01-06 6:20:10 PM
7% unemployment is an average Gord.
You can bet if there are areas of 4% then there are areas in the nation where levels exceed 7%...areas where unemployment subsidy welfare keeps the unemployed work force captive to collect dole or wait for a government make work project rather than migrate to areas where there is not enough labor for the local markets.
Meanwile back on the Keynesian estate of central economic planning, all they concern themselves with is inflation spirals... partially caused by the excess fiat currency left in circulation when private sector business migration, bankruptcy and unemployment dig a productivity trench where taxation is less effective in pulling excess currency from the system to regulate inflation. In a full fiat currency system too much circulated currency (issued largely as low interest loan credit) equals inflation. More credit=more money around and the more of it it takes to buy the same amount of goods...the national socialists in Germany learned this the hard way...Canada's Keynesian brain trust is slow on the realization
Posted by: WLMackenzie redux | 2006-01-07 6:41:00 AM
I think they're actually relatively quick to realize what's going on, WLMr, because monetary inflation been berry, berry good to the people who are in and close to the government. It is we, the sheeple, who are slow to catch on.
Posted by: Justzumgai | 2006-01-07 10:45:18 AM
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