Why Is There Unemployment In Canada Term Papers Example
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 noticeable to the majority of the population 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% .
What is striking about these statistics is the high unemployment rate despite claims of economic growth after the recession. André Bernard, a renowned Canadian economic analyst attributes this to the unemployment after the recession to the fact that most of the youths that are out of school cannot find job relevant to their career . 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 among the youth in Canada. The standing committee was of the view that austerity measures by the government would stimulate the economy to stimulate more jobs to absorb the overwhelming number of unemployed youths.
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 (Foster, 2012). In addition, when compared to other OECD countries, the recovery of the Canadian economy is not the best; other OECD members are doing better (Scarpetta, 2010). For instance, in 2011, the youth unemployment rate was 14.1% while for the average youth unemployment rate in the OECD countries was 19% (OECD, 2013). However, Germany and Australia fared better at 8.9% and 11.3% respectively (OECD, 2013).
Causes of unemployment in Canada
Low minimum wage as a cause for unemployment
According to statistics from the department of finance in Canada, the economic growth in Canada is on an upward trajectory. However, the unemployment rate remains high. With the growth of the economy, there is need for the government to adjust the minimum wage upwards to remain relevant in the changing economic times. However, this is not the case in Canada: the minimum wage remains low. This element of the economy of Canada makes people continue looking for more jobs even when jobs are readily available. Many unemployed people are less willing to take up these job opportunities because the minimum wage is low.
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 (2011). 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 .
A misconception that contributes to the stagnation of the minimum wage rate is that any increase in the minimum wage is bad for the economy, as this will increase unemployment (Minimum Wage Advisory Panel, 2014). Proponents of this notion pay reference the economic theory. According to this theory, an increase in the minimum wage would result in a decrease of the demand of the low wage labor by the businesses and this would lead to unemployment (Minimum Wage Advisory Panel, 2014). The theory suggests a low minimum wage in order to protect the low wage earners. Previously, the government has been adamant to raise the minimum wage since it feared that rather than helping to reduce the unemployment and create a better working environment, it would instead aggravate the problem of unemployment. However, in the modern times, most of the people earning the minimum wage live below the poverty line. This therefore makes all efforts by the government to eradicate poverty vague since the minimum wage policy now does not facilitate a comfortable living standard for the low wage employees (Minimum Wage Advisory Panel, 2014).
The effect of the current low minimum wage to the economy is that many people will continue looking for jobs because the current jobs are not viable. The most affected by the minimum wage are the primary income earners in the family. These employees have to cater for the needs of the rest of the family. A minimum wage is not sustainable in such cases and this leads to increased unemployment even when jobs offering a minimum wage as set by the government are readily available.
A research conducted by a panel of financial experts convened by the government of Ontario revealed that an increased minimum wage does not cause unemployment. The board, Minimum Wage Advisory Panel, recommended an increase of the minimum wage with a yearly revision to update the rate of the minimum wage to be in line with the performance of the economy and the cost of living (Minimum Wage Advisory Panel, 2014). The panel acknowledged that the cost of living in Canada has been on the rise in the post recession period and hence raising the minimum wage would help the government to solve the problem of unemployment and poverty (Minimum Wage Advisory Panel, 2014).
The board established that currently, Canada does not have a proper mechanism of determining the minimum wage rates. According to the panel, the government does not tie the determination of the minimum wage to any economic indicator. The current way of setting the minimum wage is ad hoc (Minimum Wage Advisory Panel, 2014). Therefore, the minimum wages do not reflect the minimum cost of living and this is unsustainable. The panel opines that this is important as it lays down a formal framework that ensures that any economic changes do not diminish the workers’ income. It attributes the increased unemployment after the recession to the fact that the minimum wage is unsustainable.
The setting of a low wage rate by the government is the precursor to low wages in firms. When businesses have low wage rates, it creates an unstable job market with ever changing employment and unemployment rates as workers hop from one job to another in search of a sustainable wages. According to Sher Verick and Iyanatul Islam of the International Labour Office-Employment Policy Department, the employees are adamant to raise wage rates because they 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 (Minimum Wage Advisory Panel, 2014). The Minimum Wage Advisory Panel established that increasing the minimum wage promotes labor force participation. This increases the productivity contrary to the assumptions of many employers (2014).
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. However, due to the stagnation of the minimum wage rate, unemployment after the recession persisted since the wages were unfavorable.
Failure of the fiscal stimulus plan to offset unemployment
A recession is a period of reduced economic activity. Due to the decreased economic activity, there is frictional unemployment. In a bid to restore the economic activity to the original level, most governments come up with austerity measures that stimulate economic growth with the aim of getting rid of the frictional unemployment. One way of stimulating economic growth is increasing the government expenditure. The government does this at the expense of other objectives e.g. controlling inflation, with the hope that the stimulation of economic growth will lead to the creation of more jobs.
In the 2009 budget, the Canadian government allocated 7.5 billion dollars in austerity measures to buffer the job market and facilitate the creation of more jobs . These austerity measures would see the government subsidies increase in a stimulus program meant to encourage the businesses to hire more workers. The structure of the stimulus program was such that it would see an increase in the government expenditure.
The injection of more money into the recovering economy would stimulate growth of the economy. The stimulus program increased government spending on infrastructure in a bid to create more jobs and absorb the unemployed hence reducing unemployment. According to Al Chatterjee, the stimulus program was the only way of the government stimulating economic growth (Chatterjee, 2012). She goes ahead to explain how the noble plans by the government ended up being wasteful and unsustainable. She explains how the government could have avoided the waste of the public funds in ineffective austerity measures.
While these austerity measures have been successful in the past, there is need for a guided government expenditure plan. There is need to structure the austerity measures such that their effect to the economy is measurable and there is predictability of the desired outcome (Chatterjee, 2012). This way, the government would have not just injected money into the economy, but strategically increase government spending until such a time when recovery started and then let the economy adjust on its own. In addition, if there was an effective way of evaluating the actual impact of the austerity measures, the government would have detected the failure of the policies to offset unemployment and it would have aborted this plan and embarked on a more efficient plan (Chatterjee, 2012).
Even with the subsidies from the governments, the rate of job creation was low; the problem of unemployment, especially long-term unemployment remained high. According to James Sherk, a labor policy analyst at the Heritage foundation, when governments take such measures in the modern times, the uptake of more workers by the businesses is discouraged . Instead of hiring more workers, the businesses invest in alternative programs in a bid to cut costs and increase profitability (Sherk, 2014). Some businesses resort to automation while others only hire part time labor. The failure of the businesses to take in many workers resulted in a reduced rate of labor force participation.
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 known as the discouraged workers (Sherk, 2014). This shows that rather than reduce unemployment, the government austerity measures increased the number of involuntary part time employees and encouraged more involuntary unemployment by facilitating the adoption of automation technology by the business entities. Therefore, the government austerity measures compounded the unemployment problem rather than help in offsetting unemployment (Chatterjee, 2012).
Failure of employment insurance program to as a cause of unemployment
A recession offers the best opportunity to test the government buffer strategies for economic downturns. It is an ideal time to test the government fiscal policies and the preparedness of the government to respond to an economic crisis. If the policies are sturdy and sustainable, they should survive the economic turbulence experienced in times such as recession. In addition, economic events such as the recession provide useful lessons to the government on the most effective response to employ if faced with such a challenge in the future.
The Canadian government has an employment insurance program that offers support to the citizens during the time when they are off employment. The first of its kind launched in the 1940’s (Mowat Centre, 2011). The employers and the employees contribute towards the fund and these funds help in supporting the employees during periods of unemployment. After the recession of 2007-09, the Canadian government launched an employment insurance program through the Canada Employment Insurance Financing Board (CEIFB) (Mowat Centre, 2011). The board foundation was in 2008 though its operations kicked off in 2010 (Leonard, 2013).
Among other fundamental functions of the board was to set the premiums for the employment insurance. The criterion used in setting such premiums is the performance of the economy (Leonard, 2013). In any program that guarantees employee income security, the premiums are set such that the program is sustainable and capable of providing an adequate safety net for the employees at the time of unemployment. In addition, it is supposed to act as a stabilizing factor for the economy (Mowat Centre, 2011). Therefore, it should effectively and adapt to changing economic dynamics to ensure that there is smooth transition from one economic phase to another. This prevents economic downturns like recession from causing long-term deformation to the economy.
An efficient employment insurance program should ensure all this without placing an unreasonable burden on the shoulders of the employees or the employer (Mowat Centre, 2011). The Canada Employment Insurance Financing Board failed these benchmarks as an effective income security program for the employees who suffered unemployment during the recession. Due to the failure to perform its mandate, the parliament terminated it in the beginning of 2013 following an act of parliament in December 2012 (Leonard, 2013). The failure of the program is attributable to three reasons. These are regionalization of the benefits, continued government interference and lack of sustainability of the program.
The government restructured the employment insurance program after the recession to help it to deal with the effects of the recession the greatest being the escalating unemployment in Canada (Sweetman, 2012). The restructuring took the form of new measures such as extending the benefits period by over five weeks in some regions. This meant that the beneficiaries would enjoy the insurance benefits for an additional five weeks over the traditional time due to the difficulty in finding employment during and after the recession (Sweetman, 2012).
In addition, the board launched some off the cuff initiatives to deal with the escalated unemployment in some regions of Canada (Mowat Centre, 2011). These initiatives would see some regions benefiting more than others did. This was one of the errors made in the execution of the employment insurance policy. While the recession was a national problem that affected everyone, the policy measures targeted specific regions. Due to the negligence and overlooking some regions, these regions ended up suffering more from the recession while the others benefited. This was not prudent since members from all regions contributed equally to the program. Therefore, it was erroneous to leave them out in benefits through the preference to some regions.
The unemployment insurance program did not adjust to the unemployment caused by the recession. The deep regionalization of the national employment insurance program was the main cause of failure of the program (Mowat Centre, 2011). According to data from the Canadian chamber of commerce, in April 2009, only 37% of the unemployed people from Ontario benefited from the program (Mowat Centre, 2011). This was in contrast to over 95% of unemployed beneficiaries of the employment insurance from Newfoundland. This statistic is an indicator of the great extent of unfairness and regional imbalance.
In addition to this, the government formed the board as an independent organ in order to set the favorable rates for the premiums without influence from the government (Sweetman, 2012). However, on setting the first premiums, the government overturned their decisions on the set premiums (Mowat Centre, 2011). This was a blow below the belt and it undermined the ability of the board to set sustainable pensions. As said earlier the premiums are set depending on the state of the economy. During the economic boom, there is need to increase the premiums because the employees and the employers can remit them easily. However, during the recession, there is need to lower the premiums to cushion the industries from the effects of the recession. Despite the recession, for sustainability reasons, there is need for continued contribution to the fund. However, in 2011, the government froze the contributions to the fund rather than decrease it (Sweetman, 2012).
The effect of this was draining funds from the program without replenishment. This was unsustainable and within no time, the fund was running on a deficit. This necessitated the next move by the government. The government met the costs for the five-week extension of the benefits and the freezing of the premiums. What we see here is a government desperate to deal with the face of the issue of unemployment while ignoring the root causes of the failure of the employment insurance program to help in offsetting the unemployment. The neglect of the need for an independent insurance system for employee income security led to the final collapse of the employment insurance in 2013 (Mowat Centre, 2011).
The consequence of the closure of the program was increased unemployment since there was no infrastructure to facilitate the transition from one job to another. The employment insurance provides income security during the transition and now that the parliament abolished it, the unemployed suffered more. In addition, the government had spent a lot of money on the program that failed. This expenditure in the employment insurance did not achieve the intended effect and this shows the failure of the interventions by the government. The government could have used this money in other programs to reduce unemployment in Canada.
Other than being unsustainable, the employee insurance program has been criticized for indirectly causing unemployment be discouraging the beneficiaries from looking for jobs. When the government increased the duration of the benefits for the program by five weeks, it gave additional time of a guaranteed financial safety net. The effect of this move was that it encouraged the unemployed people not to look for jobs. This explains why Canada faced a reduced rate of labor force participation. In addition, it contributes to the willingness to change jobs because the employees are sure they will not suffer during the transition period. This is undesirable because it makes the program unsustainable by increasing the expenditure on the benefits.
Use of robotics and automation in production and the failure of the government to regulate the automation 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 this 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 (Spencer, 2014).
While robots cannot do all jobs that humans can do, they create a real threat to the creation of job opportunities. 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 (Spencer, 2014). They do this because they deem it sustainable in the end. The robots will not draw a salary and their maintenance cost is not as high as the recurrent salary expenditure (Spencer, 2014). 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 (Canis, 2011). 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 (Canis, 2011).
The role of the government in the economy involves setting regulations that ensure that the growth of the economy is smooth. These regulations dictate the conduct of all players in the economy and they work to prevent the budding of any crisis that may disrupt the economy. The unregulated use of robotics and automation is such an event that culminates in the disruption of the economy by causing unemployment. The failure of the government to come up with regulations on the use of robotics is responsible for the increasing unemployment when businesses lay off workers as they automate and use robotics in a bid to cut costs (Spencer, 2014).
Failure of the government to protect the youth from 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 experience than it is to layoff an older worker who has accumulated immense work experience (2013). 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 (Foster, 2012). 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 . The overall outcome of the layoffs was increased unemployment since the youth could not find a long-term job (Foster, 2012).
In conclusion, even though the Canadian economy shows signs of recovery from the 2007-2009 recessions, the rate is not satisfactory. The creation of more jobs is stunted and the minimum wages are low. The workers, especially the youth, 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 government needs to institute regulations that protect the workers from the negative consequences of automation in the production process. 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 past recession period but also in the future.
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