Ontario’s falling unemployment rate no indication of economic health

Other indicators just as important to watch when gauging the health of the economy

Purchase Ontario’s falling unemployment rate no indication of economic health

Contact Livio

THUNDER BAY, ON, Mar 20, 2015/ Troy Media/ – Recent Statistics Canada unemployment numbers for Ontario suggest an improving provincial economic picture for the province.

The unemployment rate fell from 7 per cent in January to 6.9 per cent in February while, across the province’s 15 major urban centres, unemployment rates ranged from lows of 4.8 per cent and 5 per cent in Thunder Bay and Guelph to highs of 9.6 per cent and 7.7 per cent in Windsor and Peterborough. Despite being Ontario’s largest urban economy, Toronto surprisingly had the third highest unemployment rate in the province at 7.6 per cent while nearby Hamilton was fifth lowest at 5.6 per cent.

More to unemployment rate than meets the eye

Low unemployment rates are usually touted as optimistic economic indicators, but there is more to these numbers than meets the eye. Economic opportunity in a community creates jobs and attracts individuals into the labour force. An expanding labour force and expanding employment are also important indicators of a dynamic economic and employment environment.

For many of these Ontario cities, the unemployment rate may be a misleading indicator of economic health – especially when not considered in the context of actual job creation and labour force growth. It is possible to have a low unemployment rate while your economy is actually shrinking in terms of its employment levels and a higher unemployment rate while your employment and economy are growing.

The unemployment rate is calculated by dividing the number of unemployed individuals by the labour force, which consists of both employed and unemployed individuals available for work. The unemployment rate can fall if the labour force is declining faster than the job losses. It is also possible to have the unemployment rate rise if the labour force expands faster than the number of new jobs being created during a boom period.

In 2014, the lowest average monthly unemployment rates amongst major Ontario cities were in Thunder Bay at 5.4 per cent, Hamilton at 5.9 per cent and Barrie at 6 per cent. The highest average monthly unemployment rates in 2014 were in Windsor at 8.8 per cent, Peterborough at 8.5 per cent and Toronto at 8.1 per cent. Based on unemployment rates alone, one might decide that employment prospects might be better served by moving from Peterborough and Windsor to Thunder Bay or Guelph.

But a glance at the percentage growth in employment can lead to some different conclusions about where the most buoyant labour markets are. Employment in 2014 grew the most in Peterborough at 13.4 per cent followed by Guelph at 8.9 per cent and then Oshawa at 7.5 per cent. On the other hand, Kingston’s employment shrunk by 3.8 per cent while Thunder Bay’s shrunk by 3 per cent and Toronto by just under 1 per cent.

While Kingston ranks in the middle of Ontario’s major cities when it comes to its unemployment rate, its job creation performance was the worst. While Thunder Bay ranks the highest when it comes to the unemployment rate, its employment creation was the second worst. Toronto, on the other hand, fares poorly in terms of both its unemployment rate ranking as well as its recent employment creation performance.

Peterborough had the second highest average monthly unemployment rate in 2014 and yet its employment and labour force expanded the most at 13.4 and 10.7 per cent respectively. Economic opportunity in Peterborough has grown with employment expanding faster than its labour force, which is driving down its unemployment rate. While Peterborough’s unemployment rate was 8.5 per cent in 2014, it was down from 9.7 per cent in 2013 with expansion in employment and the labour force.

Business leaders must pay attention to other indicators

On the other hand, Kingston saw its employment shrink the most in 2014 at 3.8 per cent. However, since its labour force only shrank by 3.6 per cent the unemployment rate rose slightly from 6.4 per cent in 2013 to 6.8 per cent in 2014. Similarly, Toronto saw its labour force actually shrink in 2014 by 1.3 per cent but since its employment only fell by just under 1 per cent, it too has seen a decline in its unemployment rate over time.

The point is that business leaders in Ontario need to be more aware that the unemployment rate is not the only economic indicator when it comes to the economic health of their communities. It is important to pay attention to factors that affect the size of the labour force, drive total employment generation and affect the unemployment rate.

Livio Di Matteo is Professor of Economics at Lakehead University. He writes on Ontario’s Business for Troy Media every two weeks.

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