OTTAWA — The 30-nation OECD is warning Canada may face a prolonged period of high unemployment despite what it believes will be a major boost from Ottawa’s fiscal stimulus package.
The Organization for Economic Co-operation and Development projects the federal stimulus will reduce the job losses by between 0.7 per cent and 1.1 per cent of the workforce in 2010.
That is roughly in the range of Finance Minister Jim Flaherty’s claim in the January budget that stimulus would create or save about 190,000 jobs over two years.
“This is both because the size of the fiscal package was reasonably large (fifth largest in the OECD as a percentage of GDP) and because employment in Canada is relatively responsive to fiscal stimuli such as tax cuts and public expenditures,” the Paris-based think-tank wrote.
But the report is still relatively pessimistic about Canadian labour markets, noting that even if the jobless rate has peaked at 8.7 per cent, “Canada’s labour market typically takes a long time to recover from recessions.”
The organization points out that Canada’s unemployment rate hit a recessionary high in 1993, but that it took almost eight years after that before the rate returned to pre-recession levels.
Not all analysts agree that Canada’s job prospects are as bleak as the OECD paints them, however.
Bank of Montreal economist Sal Guatieri said while there is a danger that Canadian firms will be slow to rehire, and instead focus on improving productivity, he does not believe there will be a jobless recovery in this country.
“That is a possibility for the U.S. I would think Canada’s labour market would bounce back quicker because business confidence is higher in Canada,” he said.
The jobless recovery scenario will be a major theme throughout the industrialized world, says the OECD, which forecast unemployment will hit a post-Second World War record of 10 per cent in the latter half of 2010.
In total, 25 million workers will lose their jobs over a three-year period in the OECD’s 30-member countries.
The Paris-based watchdog calls the short-term jobs outlook “grim,” adding that labour market conditions appear set to deteriorate further in the coming months.
“There is great uncertainty looking forward,” noting that its own forecasts are for “a rather muted recovery surfacing only in the first half of 2010.”
It also says there is a risk that the rise in joblessness could result in a permanently higher unemployment level that could take many years to bring back down.
The organization urged governments to spend more on active labour market policies, such as job-seeker support, training and labour-demand support, that help the unemployed find work.
The OECD said that higher spending on these measures is cost effective and justifiable, even in countries whose public finances are strained from funding stimulus plans to fight the global recession.