Chris Sorenson’s recent cover story for Maclean’s—“How safe is your job?”—strikes a nerve: it’s easy to get the impression that the job market ‘feels’ weaker than it really is. After all, job market stories follow the same pattern every month: 29 days in a row of reports of firm after firm laying off hundreds of workers. The once-a-month Labour Force Survey release never seems to have the same sort of impact, even if—as has been the case over the past 4 years—employment increases by some 20,000 workers in an average month.
This isn’t to say that those stories are wrong, or even misleading. If anything, they understate the scale of the flow of job losses: more than 100,000 Canadians lose their jobs in a given month. But that’s just it: large numbers of job losses are standard fare for the Canadian job market, and they always have been. So are large inflows of new jobs. The net changes in employment are the tip of the iceberg: the gross flows in and out of employment are at least ten times as large.
There is a certain sentiment —possibly driven by nostalgia—that jobs used to be more stable than they are now. This sentiment turns out to be inconsistent with the data. In a recent study published in the Canadian Journal of Economics, the University of Ottawa’s Pierre Brochu looked at historical trends in job stability. Here is an extract:
It is widely acknowledged that technological change, combined with an increase in international trade, has had a significant impact on the economy. The ‘New Economy’ literature has emphasized how these forces have altered the employer-employee relationship, resulting in a breakdown of traditional job arrangements and a rise in non-standard work such as temporary work and self-employment… A perception exists that, in this ‘New Economy,’ workers have become as disposal as any other resource – implying that job stability has declined. However, researchers who directly examined this issue found modest (if any) evidence of a long-term decline in job stability…
Using Canadian Labour Force Survey (LFS) data, Heisz (2005) concluded that there was no long-term drop in job stability. He did, however, find some evidence of increased stability in the mid- to late 1990s. By updating the Canadian evidence into the late 2000s, this paper clearly shows that the changes first observed by Heisz (2005) represent long-term changes in job stability, rather than temporary changes, as was previously believed…
[T]he increases in job stability first observed in the 1990s were long-lasting, not temporary as previously believed. I also show that the rise in job stability of low-tenure workers, which had started in the 1990s, continued into the 2000s. By 2007, the retention rate for workers with less than one year of tenure had exceeded 57% – a historical high. These findings do not match up with the ‘New Economy’ literature’s belief that workers are now disposable just like any other resource. In fact, this paper shows the opposite: the employer-employee relationship is now more stable than it was in the 1970s and 1980s.
It’s possible that things have changed since then. A proper update would require reconstructing Brochu’s measures of retention rates from the LFS main data files after 2010, but that would require data and time I don’t have. However, I do have the Public Use Microdata Files (PUMF) and from that I can extract a measure of layoff rates: respondents who are unemployed for less than one month and who report permanent layoff as the reason they are unemployed. Here is what they look like:
I don’t see a recent trend to higher layoff rates.
Incidentally, keeping these flows in mind helps understand why the unemployment rate increases so quickly during recessions and falls so slowly during expansions:
David Andolfatto explains this asymmetry this way:
The basic idea is very simple… [T]he labor market is a market for productive relationships. It takes time to build up relationship capital. It takes no time at all to destroy relationship capital. (It takes time to build a nice sandcastle, but an instant for some jerk to kick it down.)
We see the same sort of phenomenon in population dynamics–the so-called “heat wave effect.” That is, mortality rates spike up during a spell of bad weather, causing a sudden decline in the population. There is no corresponding spike up in the population during a spell of good weather for obvious reasons (unless you believe in zombies returning suddenly to life).
There is nothing paradoxical about the combination of a declining unemployment rate and large numbers of layoffs. That’s how the labour market functions.
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