Sunday, July 20, 2014

Unemployment Rate in Newfoundland and Labrador

The province of Newfoundland and Labrador has the highest unemployment rate in Canada [here]. The proportion of its active population looking for a main job is twice as high as the Canadian average. Between January 1976 and June 2014, the average unemployment rate is 16.26 % in Newfoundland and Labrador versus 8.41 % across Canada.

Some Economists attribute this high unemployment rate to the importance of seasonal jobs in the province [here]. As a matter of fact, such seasonal activities as fishing and seafood processing are prominent in the economy of Newfoundland and Labrador.

Seasonal activities can indeed explain some month to month variations in unemployment rate in Newfoundland and Labrador but to what extend? The figure and table below show average unemployment rates for each month as well as their decomposition into seasonal and trend components for both Newfoundland and Labrador and Canada. 


Unemployment Rate, Seasonally Unadjusted, Newfoundland and Labrador, Canada, 1976:M1-2014:M6, Data Source: Statistics Canada
Figure: Unemployment Rate, Seasonally Unadjusted, Newfoundland and Labrador, Canada, 1976:M1-2014:M6, Data Source: Statistics Canada

Table: Seasonal Decomposition of Unemployment Rat, Newfoundland and Labrador, Canada, 1976:M1-2014:M6
Table: Seasonal Decomposition of Unemployment Rat, Newfoundland and Labrador, Canada, 1976:M1-2014:M6

Each year, unemployment rate is higher in Newfoundland and Labrador from January to May. It is, on average, above 17 % during this period. The seasonal variation in unemployment specific to each of these five months is positive but less important than the trend component. 
Let’s take for instance the month of April where unemployment rate, on average, peaks 18.57 %. Only 12.8% of this rate, which corresponds to 2.38 percentage points, has to do with seasonal variation. The other 16.19 percentage points are structural.

Unemployment rate in Newfoundland and Labrador is higher in winter than in summer due to seasonal variations in the economy but the fact that good or bad season this province often shows the worst record in Canada is a completely different matter.

My view is that unemployment rate is high in Newfoundland and Labrador because there are not enough job openings or there is no adequacy between the jobs and the qualifications available. The fact that the gap between unemployment rate in this province and the national average is narrowing following the energy and natural resource boom the province has witnessed recently shows that it is the structural lack of job openings rather than seasonal variations that explains the issue.

The gap between unemployment rate in Newfoundland and Labrador and the national average peaked 12.9 percentage points in Mars 1987. This gap reached the off-peak of 2.2 percentage points in September 2013.