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January 5, 2010 Policy Research Directorate, Strategic Policy and Research Branch

A 10-year Outlook for the Canadian Labour Market (COPS 2009 Reference Projection) Part 1: Labour Demand: the Jobs of the Future. January 5, 2010 Policy Research Directorate, Strategic Policy and Research Branch. Macro-Economic Reference Scenario 2009 – Key Messages.

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January 5, 2010 Policy Research Directorate, Strategic Policy and Research Branch

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  1. A 10-year Outlook for the Canadian Labour Market(COPS 2009 Reference Projection)Part 1: Labour Demand: the Jobs of the Future January 5, 2010 Policy Research Directorate, Strategic Policy and Research Branch

  2. Macro-Economic Reference Scenario 2009 – Key Messages • Years prior to the recession: • Solid performance of the Canadian economy, with resource boom bringing substantial gains in terms of trade and national income, leading to strong job creation in most sectors and a fall in the unemployment rate to 30-year lows • But challenges for the manufacturing sector: globalization, higher materials/energy costs, and substantial appreciation of the Canadian dollar Changes from Reference 2008: • In the short term, much weaker growth in GDP and employment, and slightly stronger growth thereafter • On average, growth relatively unchanged for the full 10 years • Current versus previous two recessions: • Canada's current recession is typical: slightly faster fall, slightly shorter duration • Full recovery in GDP and employment to pre-recession levels by 2011 • Smaller increase and faster recovery to pre-recession low in the unemployment rate due to slower labour force growth • Next decade versus previous decade: • Slower growth in GDP and employment, mostly due to demographics

  3. The global financial crisis has led to the deepest world recession since the Great Depression, ... Global financial crisis and deepest world recession since the Great Depression Oil supply shocks in 1973 and 1979 World high-tech boom and bust 1970-2014 Average China joined WTO Asian financial and economic crisis US savings and loan crisis + Gulf War oil shock Global responses from fiscal and monetary authorities Source: International Monetary Fund (IMF), World Economic Outlook Database.

  4. ... but the decline in Canadian real GDP in this recession has not been worse than in the previous two downturns 1970-2018 Average 1991 recession 2009 recession 1981-82 recession Sources: 1970-2008: Statistics Canada, Economic Accounts. 2009-2018: HRSDC, Policy Research Directorate, 2009 Reference Scenario.

  5. Slower population growth and population ageing will restrain the economy’s capacity to expand in the longer term Average Annual Growth: 2009-2018: +2.4% 1999-2008: +3.0% Slower population growth and population ageing Globalization and higher demand from emerging economies leading to a favourable increase in our terms of trade Substantial responses from fiscal and monetary authorities Tightening in monetary policy to fight higher inflation Low fiscal policy leverage due to high budget deficits U.S. housing collapse and global financial crisis leading to worldwide recession FTA (1989) and NAFTA (1994) Sources: Statistics Canada, Economic Accounts. 2009-2018: HRSDC, Policy Research Directorate, 2008 and 2009 Reference Scenarios. Note: Shaded bars represent recessions.

  6. Potential output growth of the Canadian economy will be limited by labour availability Sources: Conference Board of Canada and HRSDC, Policy Research Directorate, 2009 Reference Scenario.

  7. Employment will return to its baseline trajectory by 2013 but longer-term growth will be constrained by labour force Average Annual Growth: 2009-2018: +0.8% 1999-2008: +2.0% Cumulative decline of 2.7% in 1991 and 1992; It took about 2 years before returning to pre-recession level Slower growth in labour force Decline of 3.1% in 1982; It took about 2 years before returning to pre-recession level Expected decline of 2.0% in 2009 (actual decline of 1.6% in first ten months). Full recovery by 2011 Strong job creation and significant increases in PR and ER Sources: 1976-2008: Statistics Canada, Labour Force Survey. 2009-2018: HRSDC, Policy Research Directorate, 2008 and 2009 Reference Scenarios.

  8. The unemployment rate is expected to recover at a faster pace than in the previous two recessions due to slower labour force growth Smaller increase and faster recovery than previous recessions due to slower growth in labour force It took from 8 to 10 years before returning to pre-recession level Sources: 1976-2008: Statistics Canada, Labour Force Survey. 2009-2018: HRSDC, Policy Research Directorate, 2009 Reference Scenario.

  9. ‘The Jobs of the Future’ by Industry – Key Messages • Years prior to recession: • Strong employment gains in primary and domestic-oriented* sectors, driven by resource-boom and gains in terms of trade and national income • Declining trend in manufacturing employment brought by adjustments to higher dollar, higher energy costs and increased competition from low-cost countries • Current versus previous two recessions: • Hardest hit industries the ‘usual suspects’: manufacturing(particularly auto and wood), construction, forestry, and mining and fuels • Services industries much less cyclically-sensitive Changes from Reference 2008: • Slower employment growth in primary, manufacturing and domestic-oriented sectors in the short term • Employment in most industries returning to Ref 2008 by mid next decade, except in manufacturing where projections were revised to a permanent lower trajectory • For the whole10-year period, much weaker employment growth in manufacturing and relatively no change in remaining two sectors • Next decade versus previous decade: • Slower employment growth in the domestic-oriented sector • Modest improvement in the primary and manufacturing sectors * Note: The domestic-oriented sector is composed of construction, utilities, commercial and public services industries.

  10. As in previous decades, job creation will be driven by the less cyclically-sensitive domestic-oriented sector Solid growth in domestic demand leading to job creation in construction, commercial services and health/education Manufacturing and primary sectors are highly cyclical and more sensitive to global economic conditions Adjustment to higher dollar and commodity prices and increased competition from low-cost countries Most of the decline in agriculture and fishing Most of the rebound in mining and fuels Sources: 1976-2008: Statistics Canada, Labour Force Survey (based on NAICS, data prior to 1987 based on SIC). 2009-2018: HRSDC, Policy Research Directorate, 2009 Reference Scenario.

  11. Despite slower growth in the next decade, mining and fuels will continue to support job creation in the primary sector Agriculture and Fishing Lower world prices, severe droughts, fishing quotas Booming global demand for energy and base metals Mining and Fuels Shift from conventional oil production to oil sands extraction Forestry US housing crisis and lower residential investment in Canada Sources: 1976-2008: Statistics Canada, Labour Force Survey (based on NAICS, data prior to 1987 based on SIC). 2009-2018: HRSDC, Policy Research Directorate, 2009 Reference Scenario.

  12. Slight turnaround in manufacturing industries, resulting in virtually no employment growth over the coming decade Higher dollar and commodity prices and increased competition from low-cost countries NAFTA and the depreciation of the dollar Low Export-Oriented Gains in food, rubber, and chemical industries Downsizing in automotive and wood products industries Gains in computer, electronic and other transportation equipment industries High Export-Oriented Sources: 1976-2008: Statistics Canada, Labour Force Survey (based on NAICS, data prior to 1987 based on SIC). 2009-2018: HRSDC, Policy Research Directorate, 2009 Reference Scenario. Note: see Annex for the definition of low and high export-oriented industries.

  13. Job creation is expected to slow in construction, reflecting lower housing requirements due to demographic factors Plunge in residential investment after the unprecedented boom of previous years Residential and non residential investment driven by lower interest rates, solid growth in household income, wealth and corporate profits Employment in construction is highly cyclical • Lower housing requirement due to slower population growth and population ageing • Growth will be mainly driven by non residential investment Sources: 1976-2008: Statistics Canada, Labour Force Survey (based on NAICS, data prior to 1987 based on SIC). 2009-2018: HRSDC, Policy Research Directorate, 2009 Reference Scenario.

  14. Commercial services will remain the largest contributors to overall job creation in the longer term Reflecting slower GDP growth in services, party attributable to demographic factors Household consumption largely driven by solid growth in disposable income and wealth gains Consumer-oriented services more cyclically sensitive as they tend to be more affected by changes in household income and job insecurity (retail trade and tourism) Consumer-Oriented Business investment largely driven by healthy growth in corporate profits Business-Oriented Sources: 1976-2008: Statistics Canada, Labour Force Survey (based on NAICS, data prior to 1987 based on SIC). 2009-2018: HRSDC, Policy Research Directorate, 2009 Reference Scenario. Note: see Annex for the definition of consumer- and business-oriented services industries.

  15. In public services, job creation will continue to be largely driven by the health care and social assistance industry Increased government spending in health care and educational services (population ageing and knowledge-based economy) Employment in public services is much less sensitive to the business cycle Health Education Public Administration Closely linked to the fiscal positions and programs of governments Sources: 1976-2008: Statistics Canada, Labour Force Survey (based on NAICS, data prior to 1987 based on SIC). 2009-2018: HRSDC, Policy Research Directorate, 2009 Reference Scenario.

  16. 10-Year Employment Growth Outlook for 33 COPS Industries (AAGR 2009-2018, per cent) High-tech industries, mining and fuels, health care and professional services Mainly domestic-oriented industries (most commercial services + public services) and some high-tech manufacturing industries Most manufacturing and primary industries (excluding mining and fuels) + FIRE and construction Average = 0.8% Source: HRSDC, Policy Research Directorate, 2009 Reference Scenario.

  17. Historically, employment growth in high-skilled jobs has been stronger, especially during economic downturns High-skilled group is composed of Management, Skill Levels A and B Low-skilled group is composed of Skill Levels C and D Sources: Statistics Canada and HRSDC, Policy Research Directorate, 2009 Reference Scenario.

  18. In the current recession, high-skilled occupations have been more impacted than in previous downturns Index of Employment by Skill Level during the 1990s and Current Recessions High-skilled group is composed of Management and Skill Levels A and B Low-skilled group is composed of Skill Levels C and D Sources: Statistics Canada and HRSDC, Policy Research Directorate, 2009 Reference Scenario.

  19. The impact of the recession on low-skilled jobs will be felt longer High- and Low-Skilled Employment, 2005-2018 High-skilled group is composed of Management, Skill Levels A and B Low-skilled group is composed of Skill Levels C and D Sources: Statistics Canada and HRSDC, Policy Research Directorate, 2009 Reference Scenario.

  20. Over the next ten years, 3 in 4 new jobs are expected to be in management or in occupations usually requiring postsecondary education High- and Low-Skilled Employment (Non-student), 2005-2018 High-skilled group is composed of Management, Skill Levels A and B Low-skilled group is composed of Skill Levels C and D Sources: Statistics Canada and HRSDC, Policy Research Directorate, 2009 Reference Scenario.

  21. High-Skilled Jobs 61.9% Low-Skilled Jobs 38.1% High-skilled occupations represented 61.9% of total employment in 2008 Employment Composition by Skill Level (Non-student), 2008 Sources: Statistics Canada and HRSDC, Policy Research Directorate, 2009 Reference Scenario.

  22. High-Skilled Jobs 62.8% Low-Skilled Jobs 37.2% The proportion of high-skilled occupations is expected to change minimally over the next 10 years Employment Composition by Skill Level (Non-student), 2018 73.6% of expansion demand will be in high-skilled occupations (2009-2018) Sources: Statistics Canada and HRSDC, Policy Research Directorate, 2009 Reference Scenario.

  23. NOC Matrix, Coloured by Projected Growth Rate, 2009-18 green: Above average = AAGR > 1.25% yellow: Average = 1.25% > AAGR > 0.3% red: below average = AAGR < 0.3%

  24. Replacement demand is primarily composed of retirements Sources of Replacement Demand Sources: Statistics Canada and HRSDC, Policy Research Directorate, 2009 Reference Scenario.

  25. The effect of the recent financial market shock on retirements will be transitory Retirements and the Impact of the 2008 Financial Shock Thousands Sources: Statistics Canada and HRSDC, Policy Research Directorate, 2009 Reference Scenario.

  26. The increased importance of retirements will persist in the long run Retirements and the Share of the Population Aged 50 and Over Thousands Per cent Sources: Statistics Canada and HRSDC, Policy Research Directorate, 2009 Reference Scenario.

  27. Retirement rates are less dispersed across skill groups than expansion demand… Retirement Rate, Mean Employment Age and Median Retirement Age by Skill Level, 2009-2018 Sources: Statistics Canada and HRSDC, Policy Research Directorate, 2009 Reference Scenario.

  28. …leading to job openings arising from retirements even in low-skilled occupations Retirements by Skill Level , 2009-2018 Sources: Statistics Canada and HRSDC, Policy Research Directorate, 2009 Reference Scenario.

  29. Following the current recession, both expansion and replacement demand are expected to continue rising Job Openings from Expansion Demand and Replacement Demand Sources: Statistics Canada and HRSDC, Policy Research Directorate, 2009 Reference Scenario.

  30. The increase of retirements will limit the labour force available to "grow the economy" Labour Force Inflows and Outflows, 1999-2008 and 2009-2018 thousands 2009-2018 1999-2008 Labour Force Average Annual Growth: 1.7% (259,000 people a year) Labour Force Average Annual Growth: 0.8% (141,000 people a year) Sources: Statistics Canada and HRSDC, Policy Research Directorate, 2009 Reference Scenario.

  31. Two-thirds of all job openings will be in occupations usually requiring PSE or in management occupations Job Openings from Expansion Demand and Replacement Demand by Skill Level, 2009-2018 Thousands Source: HRSDC, Policy Research Directorate, 2009 Reference Scenario.

  32. Almost all occupations with highest labour demand will be in management or health sector *AR: The annual job openings rate corresponds to the ratio of the average level of job openings over the projection period to the employment level in the base year (2008) Sources: Labour Force Survey, Statistics Canada; HRSDC, Policy Research Directorate, 2009 Reference Scenario.

  33. Occupations with lowest labour demand will be concentrated in manufacturing and construction *AR: The annual job openings rate corresponds to the ratio of the average level of job openings over the projection period to the employment level in the base year (2008) Sources: Labour Force Survey, Statistics Canada; HRSDC, Policy Research Directorate, 2009 Reference Scenario.

  34. Replacement demand is expected to become the primary source of new job openings. The need to replace existing workers will eat up 3/4 of new labour supply, constraining growth. Recession impacts more low- than high-skilled jobs. However, this time high-skilled occupations were more affected than in the past, while low-skilled occupations were less impacted. The recent recession will have short-term impacts, but over the medium-term labour constraints to growth are expected to return. Two-thirds of job openings are expected to occur in high-skilled occupations, i.e. in occupations usually requiring PSE or in management occupations. The occupations with the highest proportion of job openings are found in management and in the health sector. Occupational Labour Demand – Key Messages

  35. ANNEX – Definition of Industry Groupings • Manufacturing: • Low-exported oriented: Food and beverage products; Printing and related activities; Rubber, plastic and chemicals; Manufactured mineral products; Other manufacturing (textile, clothing, furniture) • High-exported oriented: Wood products; Paper; Metal fabrication and machinery; Computer, electronic and electrical products; Motor vehicles, trailers and parts; Other transportation equipment (aerospace, railroad, boats) • Commercial services: • Consumer-oriented: Retail trade; Wholesale trade; Transportation and warehousing; Accommodation and food services • Business-oriented: Finance, insurance, real estate and leasing; Professional business services; Computer system design; Other professional services (scientific and technical); Management, administrative and other support services; Information, culture and recreation; Other commercial services (repair, maintenance, personal and household services)

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