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JDI Roundtable on Manufacturing Competitiveness in New Brunswick

COVID presents a fork in the road on job training

Herb Emery

Last week Statistics Canada reported grim unemployment increases since we shut the economy down in March to flatten the COVID-19 curve. That said, these numbers are likely not the numbers we should care about. What will matter more is how quickly employment rebounds as we exit the COVID-19 shutdown.

How, and how by much, employment recovers will depend on whether we carry on with our pre-COVID approach to education and training, or change and prepare COVID-displaced workers for the jobs that we still have.

We probably didn’t think we would miss the good old days of a stable, if not stagnant, labour market. As late as February, the working age population was slightly up from a year prior. With population aging and outmigration, the labour force has been falling enough that, even with weak employment growth, we had a relatively low unemployment rate of around eight per cent.

Like the rest of the country, in just two months we have seen the measured unemployment rate rise to 13.2 per cent. But even this unemployment rate is misleadingly low.

An unemployment rate is a useful indicator of the health of the labour market when you have a closed population (no one migrates in or out) and for workers whose labour force attachment is strong. Yet if a worker loses his or her job and is not currently seeking work, or returns to school or migrates away, then he or she isn’t counted in the unemployment rate and the measure becomes less useful.

Since March, 28,000 New Brunswickers left the labour force, which is almost twice as many as the 16,000 person increase in the count of unemployed over the same period in 2019. If we count the workers who left the labour force because of the shutdown as unemployed, then our “true” unemployment rate sits closer to 20 per cent.

Since there really haven’t been job losses in the public sector, which is around one-third of our workforce, we can surmise that 30 per cent of the private sector workforce is non-employed.

You will also see economists factoring in the numbers of workers who, while remaining employed, are working no hours or reduced hours. One has to presume that without the federal wage subsidy or other payroll support programs, many of these workers would have been counted as unemployed. Estimates for Canada overall suggest that this number could be as high as the number of workers who have left the labour force.

You can start to pump the estimated available workforce being idled by COVID-19 to one-third of the total workforce, or one-half of the private sector workforce.

When COVID-19 triggered a government decision to lock the province down to flatten the infection, the impact on private sector employment was immediate and deep. Given that this was part of a global economic shutdown, the enormous size of the idled workforce has led to economists comparing the current situation to the 1930s Great Depression.

The comparison with the early 1930s is an interesting one because we don’t actually know how many people were unemployed back then. Historically the government tracked employment but not unemployment because, prior to the Great Depression, it was believed that there were jobs for anyone willing to work, so there was no such thing as “involuntary unemployment.”

To not be working was considered a sign of poor character, not an economic problem requiring government action. The large numbers of men without work in the 1930s challenged this belief and led to the creation of unemployment insurance to provide income support to those who were “involuntarily unemployed.”

There are some other troubling differences between our current economic shutdown and the 1930s. In the ‘30s, collapsing global demand hit the economy hard, whereas COVID-19 has been globally coincident with severe local supply disruptions.

Princeton economist Allan Blinder notes that in the Depression, as with typical recessions, heavy industry was hit harder than small retail establishments and restaurants. With the COVID-19 shutdown, the most affected businesses are the small ones. Since March in New Brunswick, for each job lost in the goods-producing sector, there have been over two jobs lost in the service sector and these have disproportionately been from smaller businesses.

The longer our shutdown continues, the slower will be our recovery as the small-business mortality rate increases. As Blinder observes, businesses that have much greater dependence on cash flow and credit have less of a buffer to carry them through business disruptions. He writes that a Walmart can take this big hit, unlike the “small businesses, mom-and-pop shops, barber shops, restaurants, retail stores that haven’t already been wiped out by the big boxes.”

Which brings us to what this might all mean for economic recovery as our economy opens up. Up until March a big challenge facing the private sector was labour shortages. With the COVID-19 shutdown there is suddenly a large number of workers who are available for work, so viable businesses should be able to get all the labour they need as the economy re-opens.

But we are about to learn that our labour shortages have had more to do with a poor match of the available skills for the vacant jobs. Statistics Canada shows that skilled workers have been less affected by the COVID-19 shutdown than less-skilled workers. Young New Brunswickers have been hit particularly hard, with a previously awful measured unemployment rate of 16 per cent climbing to 25 per cent. Factoring in the large number of this age group who has dropped out of the labour force, and the effective unemployment rate is likely closer to 40 per cent.

According to Statistics Canada, newcomers have experienced above average employment losses, as have those holding low-wage, precarious employment. Notably in New Brunswick part-time employment has fallen nearly 20 per cent, compared to 10 per cent for full-time employment.

Knowing that the workers who have lost their jobs are likely the lowest-skilled and least-experienced, their sudden availability won’t spur our recovery, since not all of them will be hired for anything other than the type of jobs they held before.

An uncomfortable truth about New Brunswick is that government policy has aggressively promoted small business as a jobs generator for less-skilled workers. We have a high reliance on a large number of small businesses for jobs. But exports and GDP are disproportionately generated by a smaller number of medium and large firms, which require higher-skill workforces.

With a high small business mortality rate expected from the pandemic, the government will need to a make a choice: focus on re-growing small business to employ the labour that we have available, or examine how our $1 billion to $2 billion in annual education and training expenditures could be used to up-skill, or right-skill, our workforce for our export-oriented industries and smaller enterprises that can expand and scale.

This is not an easy or incremental change to workforce development. We allocate most of our public funds for a formal K-12 and post-secondary education, which are designed to slow the rate of labour market entry to manage the historical problem of labour glut. We then sought jobs for the available workers that came out of that system.

What we are missing now – that we have skills shortages – is the shift to lower-cost and shorter-duration training programs, aimed at re-skilling and up-skilling the existing workforce so that we have workers for the available jobs. Public funds could flow to trainees who seek out accredited programs to prepare them for the available jobs, rather than through the budgets of publicly funded institutions.

In the words of podcaster Matt George, our billion-dollar question for how to bring our province to recovery is this: Do we “double down” on our existing small business focus for creating jobs for the workers we have? Or do we pivot and change our approach to workforce development – to meet the skills needs of medium and large enterprises with export potential, and of the local firms with the potential to be competitive enough to be part of a deeper and thicker provincial supply chain?

The former is a safer path, most often taken when our goal has been to survive. The latter is a more difficult and risky path less that gives us a chance to grow and thrive.

Herb Emery is a Brunswick News columnist and Vaughan Chair of Regional Economics at the University of New Brunswick.

This article first appeared in Brunswick News publications – May 13, 2020

The JDI Roundtable on Manufacturing Competitiveness in New Brunswick is an independent research program made possible through the generosity of J.D. Irving, Ltd. The funding supports arms-length research conducted at UNB.