Statistics Canada
www.statcan.gc.ca
Common menu bar links
Study: Cyclical changes in output and employment
Archived Content
Information identified as archived is provided for reference, research or recordkeeping purposes. It is not subject to the Government of Canada Web Standards and has not been altered or updated since it was archived. Please "contact us" to request a format other than those available.
Employment and output have generally changed at the same time and speed in Canada during cyclical downturns over the past three decades.
A comparison of year-over-year growth of monthly real gross domestic product (GDP) and employment since 1982 shows the two change direction in tandem most of the time.
More specifically, turning points in the growth of output and employment appear to have been virtually the same during this period.
There is a slight lag of employment in Canada early in a recession, especially after a period when employers have faced labour shortages.
In the United States, however, there was clearly a lag between output and jobs, especially in recoveries. However, during the current downturn that started in 2008, jobs led output into recession.
American firms have consistently cut jobs faster than output as a result of downturns since the Second World War. There was no clear evidence in either country that employers hoard labour during downturns.
There is also little evidence from past cycles that jobs languish in Canada when output recovers significantly.
Turning points
Since 1976, there have been two complete cycles when both GDP and jobs contracted in absolute terms. The quarterly turning points for output and employment were close in both the 1981/1982 and 1990/1991 recessions.
In Canada, the initial drop in GDP in the third quarter of 1981 was accompanied by no change in employment, while the 0.3% fall in output in the second quarter of 1990 slowed employment growth to 0.1%.
This suggests a slight lag of employment behind output during the onset of a recession. Thereafter, output and employment both fell in every quarter of these recessions before turning up in unison, in the first quarter of 1983 and the second quarter of 1991.
While the turning points were almost identical, the initial contractions in real GDP were more pronounced than for employment. In the first two quarters of recession in 1981, real GDP declined 1.2%, double the 0.6% drop in jobs over the same period.
And in the first two quarters of the 1990 downturn, real GDP fell 0.8% compared with a 0.1% dip in employment. However, employment contracted nearly as fast as, or even faster than, output for the duration of these recessions.
A similar pattern has occurred so far in the current cycle, with a sharper retreat in GDP than jobs late in 2008. However, job losses matched the drop in output early in 2009.
GDP and jobs in the United States
In the United States, the timing between turning points in output and employment is different. Changes in non-farm payroll growth in the United States clearly lag turning points in output.
Moreover, the lag between quarterly changes in output and employment in the United States has increased over time, from less than one quarter before 1973 to 4.1 quarters since.
Indeed, in the previous two cycles in 1991 and 2001, jobs did not begin to recover until a year after GDP started to rebound, although it began to decline soon after GDP receded.
Note to readers
A recurring question during cyclical downturns is the relationship between output and employment. Do changes in employment lag output growth? Do employers cut output faster than jobs during recessions? And have these relationships changed over time?
This paper attempts to answer these questions by comparing data on monthly and quarterly gross domestic product and employment from the Labour Force Survey. It also compares Canadian results with the United States.
Again, the US experience is different than that in Canada, where there was little or no lag. The greater lag in the American data, which is widely scrutinized, may explain why some analysts persist in believing there is a definitive lag in Canada.
Definitions, data sources and methods: survey numbers, including related surveys, 1901 and 3701.
The study "Cyclical changes in output and employment" is included in the May 2009 Internet edition of Canadian Economic Observer, Vol. 22, no. 5 (11-010-X, free), now available from the Publications module of our website. The monthly paper version of Canadian Economic Observer, Vol. 22, no. 5 (11-010-X, $25/$243), will be available on May 21.
For more information about the Canadian Economic Observer, click on our banner ad from the Publications module of our website.
For more information, or to enquire about the concepts, methods or data quality of this release, contact Philip Cross (613-951-9162; ceo@statcan.gc.ca), Current Economic Analysis Division.
