Addressing the Unemployment Crisis

June 1 st 1994

The recent announcement by Statistics Canada that unemployment had dropped to 10.6 per cent was trumpeted by the Prime Minister as a sign that the job situation was finally turning around. That the government should view such a high level of unemployment as good news shows just how worried Ottawa is.

Indeed, it is right to worry, for Canada's current economic malaise is considerably more than simply a phase in the nation's business cycle. Clearly, our economy has problems that will not go away once commodity prices or auto sales recover. Worst yet, any of the potential cures are almost as painful as the disease itself.

Roots of the crisis

Perhaps the scariest feature of the recent downturn is the uncanny similarity it bears to that of the "dirty thirties." Like the Great Depression, this downturn has been worldwide, prolonged, and severe and its arrival heralded a major stock market decline.

Many would object to such a comparison on the grounds that, unlike the 1930s, we have not witnessed hunger marches, unemployed workers "riding the rails," or a massive stock market crash like that of 1929 where the Dow lost 85 per cent of its value. This is of course true—at least in Canada—and bears witness to the shock absorbing quality of our social programs and the effectiveness of "circuit breakers" put into operation in North American stock exchanges following the breathtaking crash of 1987. Still, the pain, whether cushioned or hidden, is real and should not be underestimated, nor should it be forgotten that the hardship currently being experienced in Eastern Europe and the former Soviet Union is probably worse than that experienced in North America during the thirties.

Of course, many of the roots of this crisis clearly lie outside of Canada. The collapse of world commodity prices, massive layoffs in the arms industry, and economic and fiscal dislocations in Eastern and Western Europe resulting from German reunification and the collapse of the Soviet Union were clearly beyond the control of Canadian provincial and federal governments. As well, part of this downturn was probably the result of long 50 to 60 year business cycles which operate within capitalist economies. These long cycles or "Kondratieff waves" (named after Russian economist Nikolai Kondratieff) suggest that world depressions seem to occur every 50 or 60 years.

Nevertheless, events in Canada have contributed to making an already bad situation even worse.

In hindsight, the negative impact of many policies forged in the late 1980s and early 1990s is apparent. Some policies, such as the GST, free trade, and the fight against inflation, while probably positive in the long run, were either poorly implemented or badly timed. As well, some policies—and here one thinks most often of the Rae government—were so badly conceived that even perfect timing or implementation would have led to disaster.

Sacrifice and self-restraint

There is now a rapidly developing consensus in Canada that many of the country's current problems are the unintended result of the matrix of economic and social programs so methodically put together since the Second World War. Spending designed to protect Canadians from the vicissitudes of life may have actually backfired by pushing the nation to the edge of bankruptcy and in so doing may deny many Canadians that most potent social program of all—a job.

This consensus is reflected in the policy shift of the current federal government. Prior to the election, the Liberal Party downplayed the importance of the national debt and emphasized government spending as the key to creating jobs and restoring prosperity. However, faced with a currency crisis and disinvestment in Canadian bonds, the government has now embraced a more neo-conservative agenda emphasizing deficit reduction. As part of this, the government is undertaking a major restructuring of Canada's social programs aimed at controlling mushrooming costs.

This question of social policy reform is key to the quandary facing Canadians today. The truth is that economists—and politicians—do in fact know how to dramatically reduce high unemployment.

If Canada were to cut social programs drastically, drop the minimum wage or eliminate it totally, remove most government intervention and regulation in the economy, and lower tax rates, the result—in the long run—would be full employment and economies every bit as vibrant as those in the Pacific Rim. The problem is the pain that would result in the short term. The experience of economic liberalization in Latin America in the 1980s and in Eastern Europe and the former Soviet Union in the 1990s suggests that there is just so much pain that people will tolerate. For Canadians, who enjoy one of the highest standard of living in the world, this pain threshold is probably quite low.

This then is the dilemma. To have full employment, Canadians must practise self-restraint and make a few sacrifices for the common good. At the same time, 45 years of affluence and increasing individualism have created a mindset which totally resists even the slightest rollbacks in social spending. Politicians, being keen students of public sentiment, understand that few voters are prepared to vote for candidates championing the cause of real government restraint and so are unwilling to do anything more than pay lip service to the issue, do a bit of tinkering here and there, and leave the real blood-letting to those who follow.

Of course, politicians are not solely to blame. Business too must shoulder some blame for high rates of unemployment. The recent epidemic of layoffs, euphemistically called "downsizing" or "restructuring," are often the result of viewing employees as just one more commodity or cost input to be cut as the need arises. While "restructuring" is occasionally required, too often it is little more than a managerial craze, not unlike the hula hoop or Edsel. Indeed, research indicates that not every company that "downsized" benefited from the experience. This is not surprising given that "downsizing" brings its own set of costs in terms of reduced service, lost opportunities, and lowered employee productivity resulting from anxiety about job security.

Then too, the preoccupation of some trade unions with continually raising the wages and benefits of their members has forced some employers to cut wage and benefit costs by layoffs, heavy reliance on overtime, and relocation to low-wage countries.

Finally, there is the failure of the public education system to provide students with the skills and education they need to successfully integrate into the workforce. It is a sad fact that at the present time there are literally thousands of jobs going unfilled because employers cannot find people with the right skills.

What is to be done?

Still, there is much that can be done to address the problem of unemployment in Canada, specifically in the areas of training, entrepreneurialism, and worksharing.

  1. Training

    Research dealing with the "skills gap" suggest that better training can reduce unemployment somewhat. Indeed, attacking this "skills gap" is one area in which business and labour can work together to reduce unemployment by ensuring a good match between workers' skills and job requirements. As well, cooperation by unions and management in the area of training may improve trust between these often antagonistic parties and so lead to other areas of cooperation and joint action.

    One example of successful collaboration is the federal government's Sectoral Initiative Program where management and labour representatives within specific industry sectors work together to identify and develop the skills needed by workers in their industries. While experience varies among sectoral groups, there have been some successes. In such cases, companies get more productive workers and individual workers become more mobile and thus less vulnerable to individual business failures.

    Of course, training is not a panacea. Clearly, it does not actually create jobs and is of little use when no jobs exist. As well, bad training is often worse than none at all. For instance, some retrained workers discover that the jobs for which they have been trained do not exist. In such a case, these workers lose valuable time which might have been better applied to looking for work. Finally, not all training providers have proved equally successful. Experience shows that training works best when designed by those closest to the workplace. While government can have a role to play in this area, especially as it pertains to funding, government itself has a poor record in actually delivering appropriate training.

  2. Entrepreneurialism

    Public policy in Canada has traditionally focused on bigness: big government, big labour, and big business. Small business has either been ignored or harmed by governments, which neither understand nor feel comfortable with its freewheeling and entrepreneurial spirit.

    In spite of this lack of attention by government (and occasionally because of it), small business is far and away the major creator of jobs in Canada. This puts government in a difficult quandary. On the one hand, the statist orientation of successive federal and provincial governments inclines them to intervene in society and the economy, seeing themselves as best positioned to make correct decisions in these areas. On the other hand, governments are faced with the unhappy reality that government initiatives in economic development and job creation have been largely unsuccessful and that the one successful job creation vehicle—small business—functions best with little or no government regulation.

    Given these realities, it is clear that the best course for government is to leave small business alone and free from the many restrictions, regulations, and mandated programs imposed upon big business and government-run enterprises.

    As well, the success of the small business sector sends a powerful message to society as a whole as to the need to inculcate the "enterprise ethic" emphasizing self-reliance, thrift, individual enterprise, and entrepreneurship into the national consciousness and culture. Such an ethic would lessen the dependence on government and so relieve pressure on government to continually increase spending (and borrowing) and to conduct costly experiments in social engineering and economic planning, almost all of which have failed.

    Indeed, it may be that the economy has changed so radically that those presently unemployed or underemployed might well consider the desirability of creating their own jobs. Given the increasingly unstable character of the job market, starting a small business may prove to be a better way of ensuring full, uninterrupted, and satisfying employment.

  3. Worksharing

    Worksharing, an idea currently gaining support among governments and some trade unions, can at times be helpful. Perhaps the best example involves working mothers who need the salary, benefits, or stimulation that the workplace offers but, at the same time, wish to spend a substantial block of time with their young children.

    Another example involves companies in such desperate financial circumstances they would have to lay off workers, were it not for workers voluntarily restricting their own hours so that fellow workers with less seniority can keep their jobs.

    On the other hand, there is a less attractive side to worksharing which seems to be gaining popularity, as seen by recent discussions among G7 leaders. This approach envisages a general reduction in the work week in all industrialized countries. Forcing workers with jobs to work fewer hours—presumably so that unemployed workers can then also find some sort of employment—brings with it the threat of falling living standards. The reality is that most people work to live and pay bills. A reduction in the work week—accompanied, no doubt, by a reduction in individual paychecks and benefit packages—would be devastating for many. As well, the danger exists that some employers might use such a reduced work week to sweat their workers by insisting that each perform the same amount of work in fewer hours. Finally, there is a real defeatism implicit in this concept. Those promoting this idea are in effect saying that job creation is hopeless and the best we can do is to spread the misery of unemployment.

An individual issue

Sadly, most current approaches to unemployment take a political or macroeconomic perspective. In fact, unemployment is as much personal and emotional as it is political or economic. It has been said that the death of one person is a tragedy, but the deaths of millions are just a statistic. And so it is with unemployment. Unfortunately, the continual emphasis by the media, special interest groups, and even church leaders on the need for government to do something about unemployment obscures the opportunities that individuals have to make a difference in the lives of the unemployed and may even discourage feelings of personal responsibility for helping individuals in their time of need.

As anyone who has ever undergone an extended period of unemployment knows, being out of work is a highly personal and often very lonely experience. One loses—quite literally—one's place in the world and with it one's sense of self-worth. Unfortunately, the unemployed frequently find themselves quickly forgotten or misunderstood by those best able to help them find new employment—family, friends, former colleagues, church members, etc. This is particularly true where the period of unemployment is long.

The reality is that individuals can do little to influence government policy or macroeconomic trends. Their real area of competence, however, lies in the opportunity of helping those closest to them—and it is here, sadly, that many fall short. For most of us, our response to the unemployment crisis should be focused on showing our caring for the unemployed by helping them with financial assistance when it is needed, emotional support (which is always needed), and by looking for job opportunities for the person out of work.

 

Paul Malvern is an Ottawa-based consultant.

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