Good Example Of Why Is There Unemployment In Canada Term Paper
The recession that plunged the economy of Canada into depression ended in the middle of 2009. The economic indicators signify growth of the economy. However, the recovery of the economy is not apparent since the rate of unemployment is still high. The rate of unemployment would be higher had many people not opted out of employment due to the unsustainable wages. There is concern that the economic growth and expansion experienced all over the world does not bring with it any reduction in the number of the unemployed. The recovery of many countries from the 2007 depression is without the absorption of people into employment. What is saddening is the fact that the rate of unemployment does not show signs of abating in the near future. Poor government policies are the root cause of the unemployment during the recovery after the recession.
In 2007 December, the economy of Canada started experiencing one of the worst recessions in its economic history. Earlier in the 1980s and 1990s, the Canadian economy experienced economic recession. The outcome of this recession was an increase in unemployment to 19.2% and 17.2% respectively. The recent recession in 2007 resulted in the rise of the unemployment rate to 15.2%.
The Canadian economic history has experienced a higher unemployment rate in the past. However, what is striking about the 2007 recession is the unusually slow recovery rate of the economy from the recession. The number of the unemployed people is higher than it used to be before the recession. The youth are the most affected from the recession. According to Statistics Canada, there is a decreased participation of the youth in the labor market compared to the pre-recession period. André Bernard, a renowned Canadian economic analyst attributes this to the unemployment after the recession and the fact that a majority of the youths are in school.
The Canadian parliament has voiced concern in the slow speed of recovery of the economy. In its 2011 report, standing committee on finance in the Canadian House of Commons led by James Rajotte highlighted the need for the government to intervene and solve the unemployment crisis through the appropriate intervention measures. The greatest concern was the high unemployment rates especially for the youth in Canada.
According to the Statistics Canada, the number of jobs available in the job market at the beginning of the recession in December 2007 reduced by over 400,000 jobs by the end of the recession in 2009 June. This is a reduction of 2.3%. While the recovery from the previous recessions has been more rapid, the recovery from the 2007 recession is slow.
Government stimulus policy as a cause of unemployment
The unemployment crisis in Canada is a cumulative issue stemming from continued poor decisions in the economy policymaking. In its report, the standing committee on finance for the House of Commons in Canada stated that while the unemployment may be cyclic, much of the employment is from structural causes. The policies passed by the government in a bid to recover the economy after the recession did more harm than good to the economy. In the 2009 budget, the governments allocated 7.5 billion dollars to buffer the job market and facilitate the creation of more jobs. These interventions would see the government subsidies increase in a stimulus program meant to encourage the businesses to hire more workers. According to Al Chatterjee, the stimulus program was the only way of the government stimulating economic growth. She goes ahead to explain how the noble plans by the government ended up being wasteful and unsustainable
Even with the subsidies from the governments, the rate of job creation was low; the problem of unemployment, especially log-term unemployment remained high. According to James Sherk, a labor policy analyst at the Heritage foundation, when governments take such measures, the uptake of more workers by the businesses is discouraged. There was reduced labor force participation rate. He argues that while the government projected positive results in the reduction of unemployment, the apparent reduction was due to the exit of people from the job market and the increase in the number of people who were not looking for a job at all.
Low minimum wage as a cause for unemployment
Even though the Canadian economy appeared to be recovering after the recession, the reduced unemployment rate was without actual creation of job opportunities. The unemployment rate remained high because a majority of the American youths remained unemployed. Two forms of unemployment plagued the Canadian economy after the recession. According to Kuvvet et al, the great recession resulted in the escalation of underemployment. Underemployment is the situation where highly skilled workers get jobs but at a low pay and for jobs that underutilize their skills. This happens when the employer is less willing to increase the wage rates. This is unfavorable for the job market because the workers do not put their experience into good use.
According to Steven Kates, a renowned economics scholar, the second unemployment product of the recession was involuntary unemployment. This refers to a situation where the labor force is willing to take jobs at the existing wage rates but they are unable to secure jobs. This happens because the economy cannot create enough job opportunities. This raises the questions why the employers were not ready to increase the minimum wage rates and why there was little creation of job opportunities.
The minimum wage was stagnant and the companies are adamant to raise it. According to Sher Verick and Iyanatul Islam of the International Labour Office-Employment Policy Department, this is because the employers view that with the increased wages they would have to reduce the working hours and they are of the view that this will reduce the productivity of the workers. However, this is a misleading assumption. Studies have shown that increasing the minimum wage will in turn motivate the workers and stimulate increased worker participation in the production process. This increases the productivity contrary to the assumptions of many employers.
The Costco business is a good example of how raising the minimum wage is beneficial for the government, the company and the workers. Zeynep Ton examines how the increase in the minimum wage for its employees has enabled Costco to remain productive over the years. The founder of the Costco Company advocates for raising the minimum wages of the workers as a way of increasing the productivity in the business. The underlying mantra is that the employees are not commodities that he can replace at any time. Instead, he advocates for business owners to view the workers as part of the business and invest in them. This in turn will create long-term employees and reduce the cost of managing such workers.
According to Zeynep, when the minimum wages are low, the employees are less motivated and they will always exit the business when a more attractive opportunity opens up. This is not desirable to the business because it increases the costs of acquiring human resource and training them afresh. On the other side, the company that has motivated workers with a long-term commitment will be able to execute its growth plans because it will not spend a lot of time in human resource acquisition and management.
Use of robotics and automation in production as a cause of unemployment
Another reason why there is unemployment and the creation of little job opportunities is that after the recession, the businesses started looking for ways to cost cut. One of the solutions was resorting to technology as opposed to a human workforce. In his book titled “The Declining Need for Human Resource Professionals in Our Jobless Recovery: Where’s The Jobs?” William N. Spencer illustrates how employers are resorting to using robots in their lines of production as opposed to a human workforce . While robots can do not all jobs, this creates a real threat to the creation of job opportunities in the bid to reduce the unemployment rate. He explains how firms are for instance willing to spend over 250,000 dollars foe a robot to carry out the work that a human worker does for a salary of 50,000 dollars.
The manufacturers opine that even if the acquisition costs are high, the robots will save them a lot of money because they do not need a monthly salary. In addition, unlike the human workers, the robots can work for long hours without the need for rest or for a leave. This reduces the cost of production for the companies.
While this is desirable to the companies because it increases the income of the companies, it is not desirable to the economy because it reduces the number of job opportunities available in the job market. In addition to the reduction in the job opportunities, the government will also lose taxes in the laid off workers. As a result, the government expenditure on the stimulus program will not be sustainable because there will be no creation of additional jobs.
Ironically, some of the companies that are benefiting from the government stimulus program are the ones in the front seat in the adoption of robotics and automation in their production process. For instance, the Canadian government bailed out the Chrysler Company to prevent it from going into bankruptcy. In 2009, the Chrysler Company received over 8 billion dollar in the bailout. The same company however intends to start using a robotic assembly line in the assembly of automobiles. While the embracing of technology by businesses may sound like a good thing, it defeats the spirit of the stimulus program, creating more job opportunities to absorb the unemployed people in the job market.
Youth layoffs as a cause of unemployment
Majority of the unemployed youth were unemployed because the companies laid them off. The rate of layoffs during and after the recession for the youths was higher than that of older employees. According to data from Statistics Canada, the layoff rate of the youth in the year 2012 was 3.5% while the layoff rate for the older workers was only 1.5. According to André Bernard, this is because it is cheaper for a company to layoff a young worker with little worker than it is to layoff an older worker. The company spends many resources, both time and monetary, to train their human resource. Therefore, the longer the employees stay with the company, the higher their value.
After the recession, when there was the need to reduce the production costs to remain profitable, the businesses had to lay off the younger workers. This is because it would be easier for the employer to replace such a worker in the future when the economy had recovered from the recession. Bernard also notes that the high outflow of the youths from the job market was because many youths were leaving employment to take part in full time education.
Solutions to unemployment
The solution to the unemployment problem lies in policies. The government needs to institute novel policies that will not only cure the economy of the unemployment but also provide immunity from future fallouts. In a few years time, the baby-boom employees will leave the job market through retiring. There will be a massive exit of workers from the job market. This will create many job openings for the youths. However, to avoid disruptions in the provision of labor, there will be need for the replacement of these baby boom retirees by young people. The youth will only be in a position to do this is they are adequately experienced to take over from the baby boomer retirees. Therefore, there is need for the youth to secure employment now so that by the time the baby boomers are retiring, they will have acquired adequate experience to take over from them. If the government does not take urgent steps to reduce unemployment, there will be a crisis when the aging population will leave the market without a dependable working population in place.
In conclusion, the rate of recovery of the Canadian economy from the recession of 2007 is not satisfactory. The creation of more jobs is stunted and the minimum wages are low. The workers are unemployed and underemployed. This is because; the employers do not want to raise the minimum wage in a bid to reduce the operation costs. In addition, the embracing of robotics technology and automation in many industries that offer jobs is a cause of unemployment. The stimulus program by the government has not been successful in reducing unemployment because it is not fiscally strategic. The government needs to issue regulations on the use of robotics to buffer the economy from the looming unemployment that will result from the use of robots. In addition, the government should tax the businesses to ensure that the stimulus program is sustainable. There is also need to advocate for ore worker training to ensure that the skill set possessed by the worker are in tandem with the requirements of the job market in anticipation of the exit of baby boomers from the job market. This way, the government will eliminate unemployment not only for the post recession period but also in the future.
André Bernard, J. U. (2012). The Labour Market in Canada and the United States since the Last Recession. Statistics Canada.
Bernard, A. (2013, June). Unemployment Dynamics Among Canada’s Youth. Analytical paper: Economic insights . Canada: Statistics Canada.
Canis, B. (2011). U. S. Motor Vehicle Industry: Confronting a New Dynamic in the Global Economy. DIANE Publishing.
Certified General Accountants Association of Canada. (2012). Youth Unemployment in Canada: Challenging Conventional Thinking? CGA-Canada.
Chatterjee, A. (2012). Canada does not require fiscal stimulus. Retrieved January 5th, 2015, from http://policyoptions.irpp.org/issues/budget-2012/canada-does-not-require-fiscal-stimulus/
Kates, S. (2014). Free Market Economics, Second Edition: An Introduction for the General Reader. Publishing, Edward Elgar.
Kuvvet Lordoğlu, D. K. (2011). Labour Markets & Employment. Ismail Siriner.
Om-Ra-Seti, K. (2012). Global Economic Boom and Bust Cycles (non-fiction economics and finance): The Great Depression and Recovery of the 21st Century. KMT Publications.
Sher Verick, I. I. (2010). The Great Recession of 2008-2009: Causes, Consequences and Policy Responses. International Labour Office. Employment Policy Department.
Sherk, J. (2014). Not Looking for Work: Why Labor Force Participation Has Fallen During the Recovery. The Heritage Foundation.
Spencer, W. N. (2014). The Declining Need for Human Resource Professionals In Our Jobless Recovery: Where’s The Jobs? Xlibris Corporation.
Standing Committee on finance. (2013). THE FUTURE WE WANT: RECOMMENDATIONS FOR THE 2014 BUDGET. Canadian House of Commons.
Ton, Z. (2014). The Good Jobs Strategy: How the Smartest Companies Invest in Employees to Lower Costs and Boost Profits. Houghton Mifflin Harcourt.
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