Unemployment in Canada
Today, Canada has emerged as one of the most livable countries around the work. The country has vast natural resources and literacy levels are high. One of the problems facing the country is persistent high level unemployment in the country. For almost a whole decade, the country has not been in a position to push unemployment down. Unemployment levels in the country 2008 were 6 % and 7% to date (Government statics, 2014). The study focuses on the potential reasons that have reduced the ability of the country to push unemployment down and the economic impact of higher unemployment levels in the country.
Causes and impacts
The year 2013 was a bad year for Canada as the country shed off 45, 900 people from its labor force (Government statics, 2014). This indicated the weakest year in job growth since 2009. This led to the Bank of Canada reviewing interest rate levels in an effort to identify whether there was a need to change it in order to boost growth in the region. This was against the expectation of experts that the economy would add 14,600 jobs, boosting the employment levels high in the country (Government statics, 2014). One of the reasons behind such still high unemployment levels emanates from the interaction of Canada with the United States. United States is Canadas largest trading partner in the region. The country has not fully recovered from the 2008 financial crises. Consequently, its trading capacity has been maintained at lower levels as compared to the period before the crises hit the country. A reduction in US economy results to reduction in the ability of the country to consume foreign goods. Consequently, Canadas trade with US declined. A decrease in trade results to reduction in demand of goods produced in a country. Reduction on demand of goods exported to Canada resulted to reduction in production in the country. Shrinking of production processes has the potential of significantly reducing the need for employees. These results to reduction of people who are employed, pushing unemployment levels up in the country. Nevertheless, the reduction in trade between the countries was not drastic and hence it contributed only top a low percentage to the stagnant unemployment levels in the country.
Another cause of rise in unemployment levels in the country has been inter-sector shift of labor. In the economy, people often shift from one sector to another as well as from one employment to another (Bank of Canada, 2014). This results to a period that these groups of people in transition are out of employment. This leads to rise in unemployment levels in the country. A slow rate of labor reallocation has the potential of significantly keeping large group of people in unemployment in the country. In spite of this, these effects are usually temporary, and resolve themselves with time. Nevertheless, if the re allocation is too slow, it would contribute to unemployment levels over an extended period of time.
Another cause of high unemployment in Canada is the setting of high minimum wages. Minimum wages have been increased significantly in various provinces. Consequently, this has led to an average minimum wages in the country. High minimum wages reduces the employment in a country in various ways. When the government imposes high wages on firms, firms are forced to hire lower number of employees (Bank of Canada, 2014). Using their existing budgetary allocation for their staff, it becomes difficult to maintain high number of employees using the same resources. Consequently, the level of employment levels in the country shifts down. At the same time, high minimum wages increases the cost of production in the economy. As a result, the firms may be forced to hire employees but increase the price of their products to cover these costs. This has the potential of reducing the demand of such products in the country. This would eventually reduce the ability of such firms to hire more workers keeping unemployment levels stagnant in the country.
The slow economic recovery in Canada since the 2008 crises has significantly contributed to unemployment in the economy. Employment emanates from production processes in the economy (Dwivedi, 2010). When the growth in output in the economy slows, the ability of the economy to engage employees in productive employment reduces. A reduction in growth of gross domestic product has the potential of reducing demand for labor in the economy. A reduction in demand for labor in the economy implies that the economy may no longer be in a position to accommodate more workers in active and productive employment (Dwivedi, 2010). This has the potential of significantly pushing unemployment levels high in the economy. At the same time, failure of the government to push interest rates down has equally contributed towards the high unemployment levels in Canada.
Finally, one of the key factors driving unemployment high in Canada is social factors, drug abuse in particular. More and more adults are consuming drugs in Canada. The most abused drug is alcohol and Cannabis. This has reduced the ability of these people to engage in active employment. It is also becoming hard for them to retain employment. Over half of individuals in a survey by Health Canada indicated were alcohol abusers (Health Canada, 2014). Drugs reduce the capacity of those involved to work. At the same time, it reduces their chances of enhancing their skills. This has contributed to unemployment levels in the country.
Unemployment has a number of effects in the economy. It results to loss of the ability of households to provide for their needs. This has the potential of reducing the level of living standards of the people (Dwivedi, 2010). This reduces the quality of life of the unemployed. Unemployment has the potential of increasing growth of social vices, such as prostitution and crime, thus creating insecurity in the country.
There are a number of steps that Canada could take to correct unemployment in the country. The country has been stagnating for long in its employment level. One such solution to the problem is to diversify the economy as well as its trade (Deaton, Hailu, & Zhou, 2014). For instance, it is experiencing economic challenges due to overdependence on United States as the regional trading partner. There is thus a need for the country to explore other destinations for exporting their goods. This will diversify its trade and minimize the adverse effects of overlying on few export destinations. This will boost exports from the country. Growth in exports would on the other hand boost growth of job opportunities in the country significantly reducing levels of unemployment in the economy (Dwivedi, 2010).
To solve the above problem, there is a need for the country to focus on reducing the interest rates. This would make the cost of doing business in the country. Consequently, it would end up attracting foreign investors to the economy. Lower interest rates in the economy would equally increase access to loans among firms. Increased money supply in the economy would end up boosting production. This would create demand for labor in the economy, thus reducing unemployment in the country (Salgado, Figari, Sutherland, & Tumino, 2014).
The third solution for the country is to create a good investment environment for foreign investors. This could be done by reducing entry requirements as well as promoting market mechanism in the country (Deaton et al, 2014). An increase in the overall level of foreign direct investment in Canada would significantly boost production in the economy. Increase in production levels would at the same time increase the demand for labor in such an economy. This would reduce the overall level of unemployment in the economy (Dwivedi, 2010).
Finally, there is a need for intervention by the government in promoting health lifestyle. This would involve the launch of an effective campaign against abuse of drugs in the economy. This would boost health lifestyle while at the same time boosting the ability of individuals to engage in and sustain economic activities as well as productive employment (Health Canada, 2014).
To address the above unemployment problems, it is evident that there is a need for the government to engage in expansionary fiscal policy. This will increase government spending while at the same time minimizing taxes (Dwivedi, 2010). . This would increase consumption in the economy. Lower taxes would equally reduce the cost of doing business. These processes would boost production as well as employment levels in the economy.
From the above presentation, it is evident that although unemployment is not too high in the economy, it has remained stagnant for an extended period of time. This implies that it has constantly kept 7% of the population, capable of engaging in work, from work. This has been as a result of slowdown in production within the economy. It has equally been as a result of weakening of regional export markets, reducing production in Canada and consequently reducing employment. Social problems such as abuse of drugs have equally eroded the ability of the young people to sustain their jobs. The government should thus promote healthy lifestyle, make the economy good for foreign investment, diversify its export markets in the region and lower the interest rates.
Bank of Canada (2014). The causes of unemployment in Canada. Retrieved from http://www.bankofcanada.ca/wp-content/uploads/2010/04/wp94-11.pdf
Deaton, B. J., Hailu, G., & Zhou, X. (June 01, 2014). Poverty in Canada: Does ManufacturinMatter?. Growth and Change, 45, 2, 362-376.
Dwivedi, D. N. (2010). Macroeconomics: Theory and policy. New Delhi: Tata McGraw Hill Education Pte Ltd.
Government statics (2014). Annual average unemployment rate. Retrieved from http://www.stats.gov.nl.ca/statistics/Labour/PDF/UnempRate.pdf
Health Canada (2014). Canadian alcohol and drug use monitoring. Retrieved from http://www.hc-sc.gc.ca/hc-ps/drugs-drogues/stat/_2011/tables-tableaux-eng.php#t6
Salgado, M. F., Figari, F., Sutherland, H., & Tumino, A. (May 01, 2014). Welfare Compensation for Unemployment in the Great Recession. Review of Income and Wealth, 60.