What is the Full Employment Rate in Canada?

Is it 6%? Or 5%?? Or even lower?? In BC, the latest unemployment rate is at 4.9%. It is even lower in Alberta.

What is the Bank going to do? Let the unemployment rate to go lower? Or try to retain things at 6%?

Sorry for the short posts lately. But things are getting a bit busy for the last little while.

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POSTED AT 5:28 PM EDT ON 19/04/06

How soon full employment?

ROMA LUCIW

Globe and Mail Update

Imagine a scenario where every single Canadian who wants to work can find a job, a situation where unemployment is essentially eradicated.

BMO Nesbitt Burns explored the notion in a preliminary note from an upcoming report, examining whether the commodity-driven jobs boom in Western Canada has already led to full employment in Canada.

“There really can be little debate now that Western Canada is already experiencing the closest thing to full employment in over three decades, with the jobless rate west of Ontario just barely above 4 per cent,” chief economist Douglas Porter wrote the note.

The jobs bonanza in Alberta, British Columbia and Saskatchewan is particularly impressive because it is boosting the entire country, Mr. Porter said, noting that the unemployment rate has dropped in every province since the recovery began in 2002.

The national unemployment rate fell to a 32-year low of 6.3 per cent in March, according to Statistics Canada data released earlier this month. Employers added 50,500 jobs that month, more than twice as many as economists had predicted.

Over the past year, the number of jobs across the country has increased an astounding 330,000 or 2.1 per cent. As has been the case for months, the increase was driven by the red-hot Alberta job market.

The job creation juggernaut shows no sign of slowing down. Job growth has picked up in the last six months, hiring intentions remain robust, and the Bank of Canada hardly seems poised to try to stamp out the expansion, Mr. Porter said.

“As recently as the late 1980's, the Bank believed that the natural rate of unemployment in Canada was about 8 per cent, but employment insurance reforms, a more mature labour force and changing union priorities have clearly altered the landscape,” he said.

“Full employment, or the non-accelerating inflation rate of unemployment (NAIRU) may now be 6 per cent, or possibly lower, and it appears that Canada will soon test these thresholds.”

For one thing, Statistics Canada's survey of manufacturers found that barely one-tenth of all firms are reporting labour shortages as a constraint on production, the report said. In addition, there has been a gradual upward drift in wages as the jobless rate has careened lower over the last few years.

These factors suggest that “Canada's already low-low jobless rate appears poised to fall even further in the year ahead,” Mr. Porter said.

“As the rate drills through the 6 per cent threshold and tests the new level of full employment, wage pressures will build, fanning out from Western Canada,” he said. The wage inflation pressures will be offset by weakness in manufacturing jobs and steady public sector wage increases.

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