Welcome to the COVID-19 Labour Market

Welcome to the COVID-19 Labour Market

How has COVID-19 impacted the young people in Canada entering the labour market and how can these insights inform our plans for recovery?
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Viet Vu
Economist
June 17, 2020
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This month in Canada and elsewhere in the world, millions of university and high school students graduated, most in virtual ceremonies, and entered a labour market deeply affected by COVID-19. Our previous research, as well as many others have highlighted the disproportionate impacts on young workers : over 15.4% of jobs lost in March was attributed to workers aged 15 to 24, and there is evidence that employers are rescinding potential employment offers. Add to this the broad spectrum of youth that exists, for example those with young children, complicating the picture of the youth employment landscape further.

In much of our previous research, we have often focused on mid-career workers, but employment trends observed in this pandemic show that disruption to early career workers has been the most severe, prompting us to focus further on this crucial group of workers. We find that:

  • There were large movements from employment to both unemployment and out of the labour force observed for both youth and the general population.
  • However, youth were twice as likely as the general population to transition into unemployment or outside the labour force (11% for youth, 5.6% for the general population).
  • Up to 1 in 3 young unemployed workers in February left the labour force in March, a higher rate than that for the general population (up to 1 in 4).
  • Compared to one year ago, fewer youths who were not in the labour force moved into the labour force (either directly starting work, or actively looking for work).

To arrive at these insights, we used a popular tool in labour economics in understanding labour dynamics in an economy: labour market transition probabilities. Broadly speaking, an individual can belong to one of three groups at any one moment: employed (working for pay), unemployed (not working for pay but actively want to work and seek employment), or outside of the labour force (not working and is not actively looking for work) – understanding these transitions allows us to go further than aggregate employment statistics, and glimpse the robustness of the labour market. This is also an important lens to consider for youth, as many might be entering the labour force for the first time in their life or transitioning from full time school.

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"As Canada begins to consider the long term impacts of COVID-19, and plans for the recovery, particular attention ought to be paid for young people in Canada; ensuring their wellbeing as well as their labour market success will be crucial in securing a successful recovery from COVID-19."

We used data from the Labour Force Survey, specifically for February and March of 2020 and February and March of 2019 to calculate these transition dynamics. We intentionally did not use April job numbers, as by that point, many federal income support programs had been announced, potentially affecting labour decisions. Focusing on March allows us to understand the immediate impact of business closures and other measures to respond to the COVID-19 pandemic. To calculate the specific probabilities, we split them into two groups: probabilities that we can directly estimate, and probabilities that we can only infer. We rely on questions in the survey that ask for previous labour force activity to estimate the first group, then use established relationships between these probabilities to estimate a range for the second group. In these cases, a range of possible values are shown, representing the minimum theoretical and maximum theoretical value for these probabilities. More detail is provided in the technical notes complementing this piece. For the purposes of our analysis, we define young workers to be those between 15 and 29 years of age.

In comparing the labour transition dynamics for the general population between February 2020 and March 2020, we find that both the transition from employment to unemployment and to being out of labour force increased by a factor of up to 10: In February 2019, only 0.34% of those who were employed became unemployed, and 0.54% of those employed exited the labour force. The respective numbers for February 2020 were 3.04% and 2.8% of those who are employed.

Similarly stark changes were observed for those who were unemployed in February. In 2019, up to 13% of such workers transitioned to being employed by March. In 2020, only up to 3.81% of those who were unemployed in February transitioned into employment.

Compared to 2019, more unemployed workers exited the labour force, and less people entered the labour force. This further collaborates points made by Statistics Canada, that official unemployment numbers don’t fully capture the labour impact of this crisis, both in the short run and long run, as we do not yet know whether those who exited the labour force can quickly return to the labour market. Studies from the U.S. found a high level of churn in the labour market in April, with three new hires for every 10 layoffs, and an estimated 42% resulting in permanent layoffs.

When comparing the trends as observed in the broader labour market to youth aged 15 to 29, the direction of movement was similar: a high number of employed youth moved into unemployment or exited the labour force by March 2020. However, the magnitude is higher: 5.37% of young employed workers became unemployed, and 5.84% of young employed workers exited the labour force, a rate almost double that for the general population. Although a higher share (compared to the general population) of unemployed youth exited the labour force (up to 31% compared to up to 26.2% for the general population), a higher number of youths who were previously not in the labour force also transitioned into the labour force and began actively looking for work (5.7% of youth not in the labour force in February, compared to 1.87% for the general population), likely showing that though some youth are delaying their first entry into the labour force, not all are.

There are indications that some of the differences highlighted between youth and the general population is not a COVID-19-induced phenomenon.When comparing the transition dynamics between 2019 and 2020 for young workers, some of the structural trends are the same a relatively high share of unemployed youth exiting the labour force, and a non-trivial number of youth who were not in the labour force in February starting to look for jobs in March. However, consistent with other documented trends, COVID-19 has impacted youth in a different way: whereas in 2019, up to 17% of unemployed youth in February started employment, in 2020, only up to 3.24% of unemployed youth were able to do so. Further, as many young workers enter the labour force for the first time, observed reduction in such transition is a concerning trend.

Research from previous recessions shows that the negative wage shock that comes from “graduating into a recession” can persist for up to 10 years (Oreopoulos, Wachter, Heisz 2006). Others have noted that recessions are often characterized by shifting skills demand, and those who graduate into a recession might end up with skill mismatches, compromising their success in the labour market (Liu, Salvanes, Sorensen 2016). However, the economic recession induced by COVID-19 is not a typical economic recession, and many of its long term effects are largely unknown, especially the implications for future skill demands and work arrangements. Add to this, the issues many universities and educational institutions face in reduction of capacity and pedagogical effectiveness, and a worrying picture emerges, as these institutions are crucial during recessionary times to retrain workers.

As Canada begins to consider the long term impacts of COVID-19, and plans for the recovery, particular attention ought to be paid for young people in Canada; ensuring their wellbeing as well as their labour market success will be crucial in securing a successful recovery from COVID-19.

We would like to thank Xavier St-Denis for helpful contributions to this piece.

Methodology

To estimate transition probabilities between three labour market states, we use the Labour Force Survey microdata for February and March of 2020 and 2019. March 2020 data was used as many important policy announcements have not yet been made, and thus likely capture the direct impact of COVID-19 on labour market decisions than subsequent months where financial support announcements were made for both the working population and current students.

Read the full methodology

For media enquiries, please contact Lianne George, Director of Strategic Communications at the Brookfield Institute for Innovation + Entrepreneurship.

Viet Vu
Economist
June 17, 2020
Print Page

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