Public-sector employment growth sparks debate about jobs recovery

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Over the past two-and-a-half years, net employment growth has been higher in the public sector than in the private sector, sparking a debate about the nature of Canada’s job recovery and today’s ultratight labour market.

Total employment has been back above prepandemic levels since September, 2021, and the rate of unemployment is at a record low 4.9 per cent. At the same time, the recovery has not been even. Sectors such as food and accommodation are still well below prepandemic levels of employment, while others, like public administration, have shown notable growth.

The Fraser Institute joined the debate Thursday, with a report noting that between February, 2020, and July, 2022, nearly 87 per cent of the net new jobs in Canada – that is jobs created minus jobs lost – were in the public sector.

“This is a complicated labour market recovery, and the headline statistics that we so often turn to – the employment rate, the unemployment rate – they don’t necessarily tell the whole story,” Ben Eisen, senior fellow at the right-leaning, non-partisan think tank, said in an interview.

“We need to be keeping an eye on that, and seeing whether we’re starting to see at some point the dynamism and growth in the private sector that we’d like to see,” he said.

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According to Fraser Institute analysis, much of Canada’s labour market recovery was driven by an expansion in government payrolls. That could strain public finances over time, Mr. Eisen said.

This conclusion, however, is up for debate. Mikal Skuterud, an economics professor at the University of Waterloo, said that measuring net job growth does not tell you much about the dynamics of actual job growth. The private sector was hit much harder than the public sector in the opening months of the pandemic, and so has had to add far more jobs to return to prepandemic levels.

“It’s impossible to measure job growth accurately with the [Labour Force Survey] data they’re using. It might be that the public sector didn’t create more jobs, but rather lost fewer. Almost certainly that’s an important explanation,” Prof. Skuterud said in an e-mail.

He also noted that public-sector jobs include a wide range of professions beyond government administrators, including nurses, teachers and police officers.

Richard Mueller, an economics professor at the University of Lethbridge, was more blunt in his analysis of the Fraser Institute paper. He said he “got a completely different story” from the Labour Force Survey data.

“The growth in total employment that’s due to the public sector is basically commensurate with the share of public sector in the total employment, so it doesn’t seem to me like there’s anything too bizarre going on here,” Prof. Mueller said in an interview. “The economy has kind of grown, employment has grown, and the public sector has taken its share of that employment growth.”

One clear trend is the decline in self-employment, which has fallen dramatically compared to before the pandemic. Brendon Bernard, senior economist with Indeed Canada, said the drop in self-employment, along with the slow recovery in food and accommodation jobs, goes a long way to explaining why net growth in private-sector jobs seems to be lagging.

“Clearly something has happened in the nature of the labour market and perhaps in the economy more broadly in Canada that’s resulted in people leaving self-employment,” Mr. Bernard said. “In some cases it might be because traditional employment might be in really strong demand, so there might be good job opportunities both in public and private sectors.”

In terms of the public sector, Mr. Bernard noted the “striking” 14-per-cent increase in public administration jobs between February, 2020, and July, 2022, as reported in the Labour Force Survey. But he said that the picture of a ballooning bureaucracy is complicated by other Statistics Canada data, contained in the Survey of Employment, Payrolls and Hours, that show a smaller 3.7-per-cent increase in public administration jobs over the period.

Trevor Tombe, an economics professor at the University of Calgary, looked at Statistics Canada microdata to get a more detailed picture of the Canadian labour market. Several intriguing dynamics jumped out, Prof. Tombe said in an interview.

Around 40 per cent of the new public-sector jobs are temporary, he said. “There you can imagine that is accounted for by short-term staffing issues meant to ramp-up health care capacity. So it doesn’t itself represent a potentially permanent change in the nature of Canada’s labour market.”

Another key finding relates to education. The vast majority of new jobs created over the past two years have been for people with postsecondary education. That’s not necessarily a good thing, Prof. Tombe said.

“It’s maybe a sign that there are winners and losers to the recovery from the pandemic. Just on a pure equity ground, we should be concerned about that. But also on economic efficiency grounds. We don’t want to have individuals not contributing their full value to the economy, as that will detract from productivity,” he said.

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