Economy
IMF foresees lingering shock even as economy recovers from pandemic – CBC.ca
With Friday’s jobs data expected to indicate a pandemic employment shortage extending into a second year, new research shows that a protracted dearth of work will create lifelong pain for many of its victims. Not only that, the report suggests it will have a wider social impact.
The adverse effect of recessions on the careers of new graduates and on their lifetime earnings has been well documented, including by Statistics Canada.
But a recent report published by the International Monetary Fund, titled The Long Shadow of an Unlucky Start, insists that failure to launch can lead to even worse outcomes, including increased criminal behaviour, an unhappy family life, depression and early death.
The impact of COVID-19 on the workforce is expected to have a lingering effect on the economy long after the virus has been conquered. And it has led to calls for strategies to mitigate the damage.
On the bright side, Doris Chu, a senior economist at the Conference Board of Canada, is optimistic about the recovery of the Canadian job market. The board foresees a strong economic resurgence leading to an unemployment rate of six per cent by the end of 2021.
Miraculous recovery halted
But what had seemed like a miraculous recovery in employment, after jobs crashed by nearly three million in March and April last year has hit a new snag. A consensus of 14 leading economists polled by Bloomberg indicates the second wave of the pandemic will lead to a loss of about 66,000 Canadian jobs in January.
“We’re still heavy into the recession,” Chu said, “so it’s going to be a slower road to recovery, up until we have a vaccine pretty much widely distributed to Canadians.”
The number of jobs for new entrants to the employment market varies with skills, with the advantage going to software and other hard skills as businesses push to expand remote services, Chu said. Other workers where demand remains strong include lab technicians, medical professionals and teachers.
But for careers hit hard by the pandemic — such as in the arts, physical retail and travel, to name just a few — demand for workers has plummeted. For all other jobs not at those two extremes, the deepest recession in decades means companies have rolled back new hires.
“It’s a fact: Recessions hit young people and others with less-developed skillsets especially hard,” said a 2019 report by RBC looking back at the impact of the previous recession. “Persistent unemployment or underemployment can allow specialized skills earned in university to atrophy, increasing potential wage losses.”
In the current recession, those who failed to find a good job during nearly two years of reduced hiring will find themselves going head to head with fresher graduates once the market opens up again.
The Royal Bank report looked at career progress and at earning potential, which declined by about five per cent during the first 10 years of those entering the workforce during an employment recession. But the IMF’s detailed analysis goes much further, suggesting that the negative effects of failing to launch a career can be dire and last a lifetime.
Worse wages, more deaths
“We find that the negative earnings effects from entering the labour market [during a recession] never fully disappear,” said the report’s authors, based on analysis of research following the 2008 Great Recession. “Even more dramatically, we find that mortality rates of recession entrants start to rise in their early 40s compared with those in luckier groups.”
This list of gloomy findings is long and dispiriting. As well as shorter lifespans, recession entrants had lower self-esteem, committed more crimes and tended to distrust governments — a possible clue to a growing insurrectionist mood in the United States and elsewhere.
Poverty rates are higher in the group, and those who pair up tend to do so with a partner in a similar financial situation. Family incomes and likelihood of owning a home are reduced.
Extrapolating from the previous recession, the IMF report shows a one percentage-point decline in lifetime income for every one per cent increase in the unemployment rate on entering the workforce.
The conclusion is that the deep employment recession of 2020 means that by the time they are 40, recession entrants will be earning seven per cent less at the same stage than those who entered the workforce in 2019.
According to Katherine Scott, a senior researcher with the Canadian Centre for Policy Alternatives, when economists focus on the challenges for skilled youth entering the workforce, more disadvantaged new entrants frequently remain off the radar.
“There are particular groups — whether it is Indigenous young people, people with disabilities, youth aging out of care — that are hugely at risk and have been really neglected in the context of the pandemic,” Scott said.
The authors of the IMF report, which was released in December, found that people with lower skill levels trying to enter the workforce do even worse than the better educated — a lifetime decline in wages more like 15 per cent for high school dropouts — and have more trouble catching up.
That is why one of their solutions is to encourage young people to increase their skill levels, which might also delay graduation until the job climate improves. Other suggestions include help with job searches, government temporary job creation and employment incentives — all ideas supported by Scott.
For those compelled to enter the workforce now, the research is merely statistical, not an inevitability. Better skilled people can catch up by changing jobs after the market improves and by recognizing the reason for the disadvantages they will face.
“Knowing that their challenges probably don’t reflect a lack of skills or personal failure can motivate those in less productive jobs to keep seeking opportunities and move to better jobs as the economy recovers,” said the report’s authors.
Follow Don Pittis on Twitter: @don_pittis
Economy
Japanese government maintains view that economy is in moderate recovery – ForexLive
Economy
Can falling interest rates improve fairness in the economy? – The Globe and Mail
The ‘poor borrower’ narrative rules in media coverage of the Bank of Canada and high interest rates, and that’s appropriate.
A lot of people have been financially slammed by the rate hikes of the past couple of years, which have made it much more expensive to carry a mortgage, lines of credit and other borrowing. The latest from the Bank of Canada suggests rate cuts will come as soon as this summer, which on the whole would be a welcome development. It’s not just borrowers who need relief – the boarder economy has slowed to a crawl because of high borrowing costs.
But high rates are also a big win for some people. Specifically, those who have little or no debt and who have a significant amount of money sitting in savings products and guaranteed investment certificates. The country’s most well-off people, in other words.
Lower rates will mean diminished returns for savers and less interest paid by borrowers. It’s a stretch to say lower rates will improve financial inequality, but they do add a little more fairness to our financial system.
Wealth inequality is often presented as the chasm between well-off people able to pay for houses, vehicles, trips and high-end restaurant meals and those who are driving record use of food banks and living in tent cities. High interest rates and inflation have given us more nuance in wealth inequality. People fortunate enough to have bought houses in recent years are staggering as they try to manage mortgage payments that have risen by hundreds of dollars a month. You can see their struggles in rising numbers of late payments and debt defaults.
Rates are expected to fall in a measured, gradual way, which means their impact on financial inequality won’t be an instant gamechanger. But if the Bank of Canada cuts 0.25 of a percentage point off the overnight rate in June and again in July, many borrowers will start noticing how much less interest they’re paying, and savers will find themselves earning less.
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Rob’s personal finance reading list
A look at two strategies for paying off debt – the debt avalanche and the debt snowball. I’ll go with the avalanche.
How not to ruin your kitchen countertop
Anyone who has renovated a kitchen lately knows how expensive stone countertops can be. Look after yours by protecting it from a few common kitchen items.
What you need to know about stock market corrections
A helpful explanation of stock market corrections. It seems an opportune time to look at corrections, given how volatile stocks have been lately. Like scouts, investors should always be prepared.
Food inflation requires more careful grocery shopping. Here’s a roundup of food products – cookies, snacks, ice cream – that don’t taste as good as they used to. Food companies have always adjusted their recipes from time to time. Is this happening more because of inflation’s impact on raw material prices? A U.S. list – most products are available are familiar to Canadians, too.
Ask Rob
Q: I have Tangerine children’s accounts for my kids. Can you suggest a better alternative?
A: The rate on the Tangerine children’s account is 0.8 per cent, which actually compares well to the big banks and their comparable accounts. For kids aged 13 and up, check out something new called the JA Money Card.
Do you have a question for me? Send it my way. Sorry I can’t answer every one personally. Questions and answers are edited for length and clarity.
Tools and guides
A comprehensive guide on how to build a good credit score.
In the social sphere
Social Media: An offbeat way of fighting high food costs
Watch: Is now the hardest time ever to buy a home?
Money-Free Zone: Singer-songwriter Maggie Rogers has a new album called Don’t Forget Me and it’s generating some buzz because it’s a great listen. Smooth vocals and a laid back countryish vibe that hits a faster pace on one of my favourite cuts, Drunk.
More PF from The Globe
– He keeps ‘a few thousand in crisp new bills’ at home – is that a good idea?
– The pension pivot: Employers recognizing that workers need help with debt as much as retirement
– Her bond ETF is ‘a dud and not promising at all’ – should she sell?
– Despite high fees, Canadians remain perplexingly loyal to mutual funds. Here’s why
More Rob Carrick and money coverage
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Even more coverage from Rob Carrick:
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- 📈 Investing: Canada’s top digital broker is TD Direct Investing, with an assist from the TD Easy Trade app • 2023 Globe and Mail ETF buyer’s guide part one: Canadian equity ETFs • For the ultimate in cheap investing, check out the Freedom .08 ETF Portfolio • Yes, there is risk in Canadian bank deposits for the unwary and complacent • CDIC covers bank deposits, but who protects your investments if your broker goes bust? • Answers to your questions about the low-risk ETF paying almost 5% • Happy fifth birthday to one of the all-time best investing products for everyday people • An investing strategy that wins cleanly over the long term by outperforming in bad years like 2022
- 💰 Your money: Mortgage holders, savers and GIC investors, it’s time to change your thinking on interest rates • How much debt is each generation of Canadians carrying, and how do you compare? • For the sake of their financial futures, young people should leave Toronto and Vancouver • This practical new spin on a savings account might just peel you away from your big bank • Rental fraud grows amid rise in fake, falsified tenant applications • Are Canadians worse off financially now than in the 1980s? • From groceries to auto loans, here’s how much more it costs to live right now • When saving for retirement, should you change your asset mix over the course of your career? • Do retirement income needs always rise alongside inflation? Not necessarily • When the bank suggests you lock in your variable rate mortgage, it has an angle
Economy
LIVE: Freeland joins panel on Indigenous economy – CTV News Montreal
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LIVE: Freeland joins panel on Indigenous economy CTV News Montreal
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