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Quality Study

Canadian job quality sinks to record low - low-paying jobs becoming the norm

Further interest rate cuts not likely the cure

TORONTO - Job quality in Canada is now at a record low and showing little sign it will turn around in the near future, finds a Canadian Employment Quality Index. The index, which measures the quality of employment from a compensation perspective, shows declines in all measures and indicates the drop in Canadian job quality is more structural than cyclical in nature and likely can't be reversed by monetary policy.

"The Bank of Canada continues to warn us that the headline unemployment rate is not as rosy as perceived and, in fact, according to the Bank's new and improved measure of labour market activity, labour slack is still significant," says Benjamin Tal, deputy chief economist and author of CIBC's Employment Quality Index.

"In many ways, the Bank has a point. Our measure of employment quality is now at a record low—suggesting that the composition of employment is sub-optimal. But a closer examination of the trajectories of our index's sub-components suggests that the Bank's prescribed remedy of low and lower interest rates might not cure what ails the labour market."

The Canadian Employment Quality Index (EQI), measure three key areas:

• the distribution of part-time vs. full-time jobs;
• self-employment vs. paid employment;
• and the compensation ranking of full-time paid employment jobs in more than 100 industry groups

Mr. Tal notes that the since the late 1980s, the number of part-time jobs has risen much faster than the number of full-time jobs, which is often seen as the most important measure of employment quality.

"The damage caused to full-time employment during each recession was, in many ways, permanent. That is, full-time job creation was unable to accelerate fast enough during the recovery to recover lost ground. The good news is that for the past year, the number of full-time jobs rose twice as fast as the number of part-time jobs—a factor that worked to offset some of the recent softening in our index."

The Index shows a similar trend in the ratio of paid- to self-employed Canadians. The number of self-employed workers has been on a steeper incline over the past 25 years and the last year grew at a rate four times faster than the number of paid-employees. The index rates self-employment to be of lower quality, simply due to the fact that, on average, it pays less than salaried positions.

The third main factor measured by the Index is the compensation ranking of full-time paid employment jobs in more than 100 industry groups and, here again, the numbers are not encouraging.

"While full-time paid-employment jobs are on average of higher quality than part-time and self-employment jobs, not all full-time paid-employment jobs were created equal," says Mr. Tal. "The number of low-paying full-time jobs has risen faster than the number of mid-paying jobs, which in turn, has risen faster than the number of high-paying jobs.

"Over the year ending January 2015, the job creation gap between low and high-paying jobs has widened with the number of low-paying full-time paid positions rising twice as fast as the number of high-paying jobs. Those trajectories are largely behind the softening in our measure of employment quality over the past two decades."

The report notes that job quality in Alberta has already taken a hit, falling by three per cent during the year ending December 2014. Saskatchewan and Manitoba have seen the similar declines with Ontario falling by four per cent. British Columbia, Atlantic Canada and Quebec have bucked the trend and seen quality increase over the period.

"The long-term trends of our quality components suggest that the decline in employment quality in Canada is more structural than cyclical," adds Mr. Tal. "That is, the slow growth in the number of high-paying jobs might reflect a growing labour market mismatch. And the signal that we are getting from the wage mechanism is consistent with that observation. Over the past decade, wages in high-paying sectors rose almost twice as fast as wages in low-paying sectors.

"In other words, the fastest growing segment of the labour market is also the one with the weakest bargaining power. That works to weaken the link between labour market performance and aggregate wage gains. Low or lower interest rates will do little to close that gap."

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