What the Governor of the Bank of Canada saw...

This is a little past due, but it ties in with an excellent post by Stephen Gordon today in the National Post (here) so I thought I would dust it off. The Governor of the Bank of Canada, in a speech to a business crowd and a press conference on November 3 and at the House Committee on Finance on November 4, cited youth unemployment and underemployment as significant features of the sluggish recovery of the Canadian economy since the financial crisis of 2008. He refers multiple time to the hackneyed meme of the young discouraged workers living in their parents’ basement suggesting that they would be better off from a career perspective taking unpaid work for CV building purposes.

By definition, discouraged workers are not in the labour force. They have withdrawn the offer of their labour services due to poor employment prospects. They are neither unemployed nor underemployed. They simply are not labour force participants. The labour force participation rate is the statistic that is used to measure this labour characteristic. So how do the youth labour market participation rates look today compared to the recent past following economic slowdowns. Prior to the financial panic of 2008, there were recessions in Canada in 1991 and 1981. Assuming that the adult children still living in their parents’ basements to which Mr. Poloz refers are in the 20 to 24 age group, here is what the chart looks like.

Statistics Canada. Table 282-0002 - Labour force survey estimates (LFS), by sex and detailed age group,
annual

For males aged 20 to 24, the participation rate dropped precipitously after the 1991 recession from 85.4% in 1989 to 79% in 1998 and never really recovered, remaining within a narrow range between 81.4% and 78.8% until 2011. It fell slightly to 77.1% in 2012, recovering marginally to 77.5% in 2013. The effect of the so-called Great Recession on the participation rate for this group was much less severe than the 1991 recession.

For females in this age group, the participation rate also fell sharply after the 1991 recession, from 78.4% in 1989 to 72.6 in 1998. However, it had recovered to 77.2 by 2003, stabilized at 76% for a few years before dropping in small steps to 75% since 2009, almost exactly what it was in 1981. So, for this group as well, the Great Recession has had much a smaller effect on its participation rate than the 1991 recession.

The unemployment rate for this age group was also much higher following the 1981 recession (20.6% for males, 14.5% for females in 1983) and the 1991 recession (18.7% and 12.8% respectively in 1992) than following the slowdown of 2008, with rates of 14.8% and 9.1% in 2009.

So, can we stop talking about adult children living in their parents’ basements due to a bad economy as somehow emblematic of our times? If adult children really are more likely to stay in the parental home longer than before, lack of affordable housing, expanded educational opportunities and higher student debt may well be more significant factors than poor employment prospects.