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How low can we go?

Unemployment in the Yukon is low, but the reasons why may indicate problems

The Yukon’s unemployment rate is remarkably low. In August, it hit the lowest I can remember: 2.3 per cent.

This is remarkable for several reasons.

It was less than half the rate in the next lowest province or territory. That was B.C., which was 5.1 per cent.

It is also lower than we would expect even when the economy is at what economists call “full employment.” Economists expect there to be some unemployment even when the economy has bounced back from a recession. There will always be a few workers changing jobs, leaving school and looking for work, or suffering a longer-term mismatch between their skills and local job requirements.

Economists don’t agree on what full employment is, but most Canadian estimates have put the unemployment rate for full emplyoment around five or six per cent. The Yukon’s figure is half that.

It’s also remarkable because the August figures aren’t isolated. Even more recent figures in September, the latest available, show the rate at only 3.3 per cent. The Yukon’s unemployment has been below the Canadian average, except for a blip in August and September 2016, for more than two years. And usually by a substantial amount.

Finally, it’s remarkable if you compare it to the turn of the century. Back in 2001, the unemployment rate was 11.3 per cent and hovered around 10 per cent until 2004.

This is good news. Unemployment is a scourge. You can never get back the output lost when a person isn’t working. Nor the tax revenues or consumer spending at local businesses. More importantly, unemployment hits affected workers, families and communities hard.

What explains this remarkable turn of events?

Is it that our last few ministers of economic development will join Franklin Roosevelt and his New Deal in the economic pantheon of successful government job creation programs? Did the mining industry do it? Was it the tidal wave of transfer-payment money from Ottawa? Or something else?

Economists will probably still be arguing about this when the economics department at Yukon University celebrates its 100th birthday.

One clue may be in the workforce numbers, provided by the Yukon Bureau of Statistics. The unemployment rate is the number of unemployed divided by the workforce. The seasonally adjusted workforce shrank from an all-time high of 22,500 in April 2017 to 21,500 in August, a loss of 1,000 workers. The number of Yukoners employed went up 300 over the period. Meanwhile, the number of unemployed shrank by 600 from 1,100 to 500 (the statistics reports round figures to the nearest 100 so they may not add up exactly).

A large number of workers seem to have gone missing. They are either a statistical anomaly, left the Yukon, or stopped looking for work (you have to be actively looking for work to count as “unemployed”).

In the past, some places have suffered a lot of so-called “hidden unemployment.” Steel workers in rust belt towns where the mill went bankrupt, for example, don’t show up in the unemployment statistics if they have given up looking for work. That doesn’t seem to be the case for the Yukon, since we actually have a much higher percentage of our population working than the Canadian or B.C. averages (and even a bit higher than Alberta).

So it looks like some workers have left the Yukon, perhaps because of other opportunities or maybe because our high housing costs make it an expensive place to be unemployed.

Another clue comes from the mix of new jobs. Over the last two years to September, the Yukon added 800 public sector jobs versus only 300 private sector jobs. And the private sector jobs were all employees. The number of self-employed Yukoners is flat over the period. And these figures may understate the role of government, since it is likely a portion of the private sector jobs are working on government contracts.

Now I am going to go out on a limb, and provide the Yukon University economics department some fodder for future seminars.

Could it be time to change our mental model of the Yukon economy? My hypothesis is that we are no longer a resource economy with a wildly fluctuating private sector. We are a government economy, with a small private sector adapted to serve the needs of departments and their employees (and a couple of mines on the side).

An accompanying hypothesis is that the government sector and its wage rates have grown faster than the housing stock, resulting in high real-estate prices.

Consider that 2001 unemployment rate of 11.3 per cent. That was a couple of years after the Faro mine closed for the last time. The economy still had workers and businesses in place to serve a mine that, at one time, supported a town of over 2,000 people. Over time, our businesses and workforces have adjusted (painfully) to fit a much smaller mining sector.

Another way to look at it is the percentage of Yukon workers employed by our four levels of government. In September 2015, this was 39 per cent. In April this year, it was 40.4 per cent. Last month, it was 40.7 per cent.

If the two hypotheses above are true, you would expect to see low unemployment. If you have a good job with the government or at a firm serving it, you can afford housing. If you are unemployed or running a marginal business, the pressure to relocate is high.

The low unemployment in this scenario also means that any big economic development projects don’t have enough unemployed local people to hire. The new workers would have to come preponderantly from Outside. Furthermore, any entrepreneurs starting new businesses in the Yukon need to focus on high-value add activities, since real-estate costs are high and low unemployment means wage rates for workers will be higher than in the provinces.

Low unemployment is a good thing. But it means we need to change how we think about economic development.

Keith Halliday is a Yukon economist and author of the MacBride Museum’s Aurore of the Yukon series of historical children’s adventure novels. He is a Ma Murray award-winner for best columnist.