Economy

Scroll over 17 countries in this map to view the 2008 unemployment rate for each country (per cent).

Despite the increase in 2008, Canada’s unemployment rate was still lower than it has been anytime between 1974 and 2006. In 1983, the unemployment rate in Canada reached an all-time high of 12 per cent. A more robust economy following the recession in the early 1990s, as well as stricter rules for unemployment benefit claims, helped Canada to cut that rate in half. It reached a 32-year low in 2007.

Not only does high unemployment tend to hurt labour productivity and GDP growth, it is also linked to higher rates of poverty, homelessness, income inequality, crime, poorer health outcomes, lower self-esteem, and social exclusion.

Unemployment rates rose in seven comparator countries, including Canada, in 2008. The biggest jump in unemployment occurred in the United States—from 4.6 per cent in 2007 to 5.8 per cent in 2008. The U.S. shed nearly 400,000 jobs in 2008, primarily in the manufacturing and construction sectors. And the situation in the U.S. got worse as the year went on. The U.S. unemployment rate increased steadily from April to December, ending the year at 7.2 per cent.

Ireland also experienced a sharp increase in its unemployment rate—from 4.6 per cent in 2007 to 6.3 per cent in 2008. As in the U.S., Ireland’s unemployment situation deteriorated as the year went on. By December 2008, the Irish unemployment rate was 8.7 per cent, the highest rate of the 17 comparator countries.

The aim should be that every Canadian who wants to work and is able to work should be able to find a job. Unemployment has disturbing consequences for individuals, their families, and the communities in which they live.

But full unemployment does not necessary mean zero unemployment. Rather, it is the lowest possible unemployment rate with the economy growing and all factors of production being used as efficiently as possible. There will always be unemployment triggered by mobility within the labour force—people moving between jobs, switching careers, or relocating geographically. Structural shifts in the economy—often the result of technological changes—also contribute to some level of unemployment. When, for example, the introduction of computer desktop publishing led to the elimination of traditional typesetting, typesetters lost their jobs. Some were able to retrain for other jobs, but others found themselves unemployed. The only way a country could ever eliminate this type of unemployment is by eliminating all technological advancement that results in structural shifts. Obviously, no country should aspire to this.

Not necessarily. Countries with extremely low unemployment rates often face labour shortages. A 2007 study by the Norwegian Labour and Welfare Organization found that about 44 per cent of Norwegian enterprises were struggling to hire staff. One in every four Norwegian enterprises was badly in need of more workers. Labour shortages can severely constrain economic growth and potential.

Norway, which has the highest GDP per capita, also has one of the lowest average hours worked per week of the 17 peer countries. Shorter working hours are often a positive by-product of rising income (or, GDP) per capita. In short, as people have more money, they choose to work less and enjoy more leisure time. Reducing work time can create jobs for other people, helping to bring down the unemployment rate. Norwegians work 33.7 hours per week, while Canadians work an average of 36.5 hours per week.

No. Despite a decline in unemployment, Canada has not improved its position very much relative to most of the other 16 ranked countries, which have also reduced their unemployment rates over the four decades.

In absolute terms, Canada’s unemployment rate is considerably lower today than it was 30 years ago. Unemployment reached a high of 12 per cent in 1983. By 2008, the unemployment rate was 6.1 per cent. 

Sweden and Finland are the two countries that suffered a significant grade drop in this category. Sweden went from an “A” in the 1970s and 1980s to a “C” in the 1990s and 2000s. Finland fell from a “B” in the 1970s and 1980s to a “D” in the 1990s and 2000s. Both Finland and Sweden began the 1970s with unemployment rates of 2 per cent.

Finland went through a deep depression in the 1990s—partly due to the collapse of trade with the Soviet Union in 1991—during which unemployment rose from 4.5 per cent in 1990 to 17.9 per cent in 1994, the highest of any of the comparator countries in four decades. Sweden had a similar story. Between 1990 and 1993, GDP fell by a total of 4 per cent, causing the worst economic crisis in Sweden since the 1930s, and unemployment soared.

Some analysts are comparing the current U.S. situation with Sweden’s banking crisis of the early 1990s. The 1985 deregulation of credit markets set the stage for an overexpansion in finance and real estate markets. When the bubbles burst—for example, the value of Sweden’s real estate market fell by about 50 per cent in 18 months—there was a run on the currency and the central bank was forced to briefly jack up interest rates to 500 per cent. More importantly, Sweden took more sweeping steps to solve its crisis, spending about 4 per cent of its GDP to bail out its banks. But it also forced the banks to write down losses and give up equity to the government. When markets rebounded, the government sold off the shares at a profit. ¹

For a brief time in the mid-1970s, unemployment in the U.S. was higher than in Canada, largely a result of the more severe effects of the 1974–75 recession in the United States. By 1981, however, unemployment rates in the two countries were identical, at 7.6 per cent. But the parity would not last long.

Canada was hit hard by the economic downturn of 1981–82. Although overall GDP growth in the 1980s was nearly identical in the two countries and both economies rebounded by the end of the decade, Canada experienced a simultaneous growth of its labour force, increasing the number of people available to work. Mostly this was due to higher participation of women in the workforce, as a result of the coming-of-age of Canada’s baby boomers, as well as an influx of immigrants. Canada’s inability to accommodate the larger labour force triggered an unemployment gap with the U.S., one that would carry Canada into the next decade.

The 1990s began with a recession that was much more severely felt in Canada than in the United States. The gap in unemployment, which averaged 2 percentage points in the 1980s, widened to 4.5 percentage points in 1993. The recovery that followed has sometimes been referred to as a “jobless recovery” in Canada. Employment was slow to rebound, despite growth in output. By the end of the decade, however, employment growth in Canada was substantially higher than in the United States. Sluggish economic conditions in the U.S. in the 2000s have continued to reduce the gap. In 2008, Canada’s unemployment rate was just 0.35 percentage points higher than its southern neighbour’s. In fact, on a monthly basis, the December 2008 unemployment rate was higher in the U.S. than in Canada—7.2 per cent versus 6.6 per cent.

Another explanation for the difference in national unemployment rates relates to differences between the two countries’ unemployment (employment) insurance programs. In a detailed analysis of the Canada–U.S. unemployment gap, University of British Columbia economist Craig Riddell concludes that “although there are some differences between Canada and the U.S. in both the coverage and ‘generosity’ of the respective EI/UI programs, the most striking difference is in the likelihood that an unemployed worker receives EI/UI benefits.” ²

¹ Information on Sweden's financial crisis came from Andrew Purvis, “Sweden's Model Approach to Finance Disaster,” Time, September 24, 2008, [online, cited May 27, 2009]. 

² W. Craig Riddell, “Why Is Canada's Unemployment Rate Persistently Higher than in the United States?” Canadian Public Policy, 31 (March 2005), p. 99. [cited May 9, 2008].

See discussions on other indicators
Income Per Capita	Unemployment Rate
GDP Growth	Employment Growth
Labour Productivity Growth	Inward FDI Performance Index
Inflation	Outward FDI Performance Index