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The perils of a jobless recovery

Globe and Mail Update

Without warning last fall, Abdul Simard was called to a meeting at a restaurant across the street from the factory where he worked. After 26 years on the job, he was being let go.

His plant, located in the industrial heartland of Ontario just northwest of Toronto, manufactured steel pipes. But in a matter of weeks, the entire operation would be shuttered by the company's U.S. head office.

When he'd stepped off the plane from Guyana in 1982, with the Canadian economy in the grip of one of the worst postwar recessions on record, Mr. Simard still found work almost immediately.

Now, for the first time since that day, the 49-year-old forklift operator was unemployed.

But the situation would get worse. Soon after, his wife and his daughter were both laid off, also from factory jobs. None of them have so far had any luck finding work.

“It is a house full of unemployed people,” Mr. Simard says.

For someone who considers himself a hard-working man, this is unsettling.

But more disturbing – to economists, politicians and the throngs of desperate job hunters across the country – is the likelihood that it will be a long time before people like Mr. Simard can find similar-paying work again, assuming they ever can.

The recession may be all but over, and policy makers around the world are starting to take tentative steps toward unwinding the extraordinary stimulus measures taken over the past year.

But while major economies may be starting to grow again, for job hunters like Mr. Simard the end of the recession is little more than a headline.

More than in previous recessions, there has been a wholesale shift of workers from full-time jobs to part-time positions, as laid-off employees take whatever work they can get to make ends meet.

It's the lingering hangover of the downturn. For all the talk of green shoots, the return to economic growth will probably bring with it only a trickle of new jobs in Canada and the U.S. So far, all indications point to a “jobless recovery,” a phrase that has been virtually absent from the economic lexicon since the mid-1990s, but has now returned with an unwelcome vengeance.

It's no surprise that the Canadian unemployment rate, which has risen to 8.7 per cent from 6.1 per cent a year ago, will shoot higher. Unemployment is a lagging indicator and typically continues rising for months after the economy has stopped contracting.

At some point next year, the Organization for Economic Co-operation and Development expects the jobless figure to hit double digits in Canada. The recession of the 1990s led to an unemployment rate as high as 12.1 per cent by late 1992.

Based on that one measure, it appears that this recession could have been a lot worse. But the trouble, economists say, is that the 8.7-per-cent unemployment figure may be hiding as much as it reveals. Beneath that figure lurks a deeper shift in the country's job market wrought by the recession – and it's a change that poses long-term risks to the economy and its workers.

Unemployed Canadians are now finding themselves out of work for longer periods of time. In Canada, the average length of unemployment has risen over the past year to 17.6 weeks from 15.3 weeks. That may seem like a small change, but it amounts to a full paycheque, and potentially billions to the economy if those people were able to find work.

Those who are fielding job offers aren't getting the offers they want. Many are finding only part-time or contract work, and almost always at much lower wages. If the official unemployment number were to include part-time workers looking for full-time work, as well as those who have given up, the true Canadian unemployment rate might well creep into the mid-teens. (In the U.S., it has been estimated at between 15 and 19 per cent.) The jobless recovery is one of the factors at the centre of economists' concerns about a so-called double-dip recession. In the double-dip, the economy comes back, but consumers are so financially tapped out – partly because they've borrowed money to get through periods of unemployment or low-paying work – that they can't spend, and the economy spirals downward again.

“The double-dip recession is what everybody is worried about,” said Carl Van Horn, a labour economist at the Heldrich Center for Workforce Development at Rutgers University in New Jersey. “Those folks who are unemployed are going to come out of this recession with debt, and not be able to go very far.”

The part-time unwilling

Mr. Simard is the embodiment of the Canadian jobs story. He and the 140 employees at Emcon Technologies were in the first wave of the pink slips that began to rain down when Canada followed the U.S. into recession a year ago.

Since then, a staggering 486,000 full-time jobs have evaporated across the country and only a fraction have been replaced – much of them with lower-paying, part-time work.

Mr. Simard went several months without finding a job or even getting a response from a prospective employer. After sending out more than 100 résumés and going door-to-door at manufacturing plants north of Toronto looking for work, he finally received one offer. It came this summer in the form of a temporary two-month contract. The job paid $11 an hour – roughly half the $21.38 an hour he made at his old job.

“I told them, ‘I'm not expecting you to pay me $21.38 because I know how the business works. I just want a job,” Mr. Simard said. But in the end, like so many others, the offer never panned out.

The shift to part-timers had already started well before Canada's unemployment figures peaked last October and companies like Emcon began to close their doors. It's one of the things that gave the illusion that Canada's economy was more resilient, if healthier, than it really was back in the summer of 2008.

During September, 2008 – the month Wall Street collapsed with the crescendo implosion of Lehman Brothers and the turmoil in bank credit markets around the world – the Canadian economy hummed along seemingly as though nothing happened, adding 107,000 jobs. But 97,000 were part-time positions, defined by Statistics Canada as those jobs that offer less than 30 hours a week.

The trend has continued since then – 148,000 part-time jobs have been added to the labour force over the past year, making it the only job category that has increased. It is a troubling sign of companies' uncertainty about the economy, says Douglas Reid, a professor of strategy at Queen's University School of Business.

“Think of a part-time person as kind of a bet on the future,” Mr. Reid said. “A part-time person is cheaper to get rid of. Your severance costs are lower, because you're not making the same type of commitment to them. It's more of a toe in the water.”

This has put the focus of the past year on a phenomenon known as the “involuntary part-time worker” or “the part-time unwilling” – those who want a full-time job, but are forced to work part-time to put food on the table and keep the lights on.

Statistics Canada began flagging the involuntary part-time worker in its monthly job updates in December, though it is difficult to tell how many of the 3.3 million Canadians working less than 30 hours a week fall into this category.

The ‘peanuts' offer

Will Jones counts himself among Canada's part-time unwilling.

When he landed a well paying job at TransAlta Corp. in early 2008, running the electricity company's computer systems, one of the first things Mr. Jones did was buy a house.

He wanted to live the homeowner's dream, so he plunked down mid-six figures on a full-sized house in Calgary, which he helped finance with a salary that paid him a comfortable $120,000 a year.

It didn't last long. Things took a turn in February when the slowing economy humbled energy prices and TransAlta, like many companies, began to slash costs. As one of the newest additions to the company, Mr. Jones, 57, was among the first to go.

Immediately, he began looking for work, but found little in the form of full-time opportunities. Instead, Mr. Jones was forced to pick up a few days of work each week to try to make ends meet.

“When you're unemployed, people can catch you at nickels and dimes,” he said. “They know it when they have got a guy who's probably worth a fortune, but he's unemployed and he's got a mortgage. So they offer him peanuts. And you take it because you're scared. And because three days a week is better than no days a week.”

In June, unable to keep up with his mortgage payments, Mr. Jones sold the home in a hurry, in a slumping real estate market. The sale came at a considerable loss, forcing him to absorb tens of thousands of dollars on the mortgage. He now continues to make monthly payments, albeit smaller ones than before, on a home he doesn't live in. “I was falling so far behind that they were going to take it anyway,” he said.

The eroding of the economic muscle of the consuming class could have a big impact on the recovery. Consumers are often looked upon to kick-start a slumping economy, particularly in North America.

In the U.S., where consumer spending drives $7 out of every $10 in the economy, a study last month by Rutgers University found that 73 per cent of people would be willing to take a pay cut in order to find a job.

Unable to find steady full-time work, Mr. Jones turned to a number of odd jobs this summer to help make ends meet, including driving a truck one day a week and helping out at a soup kitchen. As one of the part-time unwilling, he figures he has no choice.

“I miss my job,” he said from the din of the soup kitchen. “I loved my job.”

‘The rug was just pulled out from under us'

In both Canada and the U.S., the labour numbers also tell a sobering story about the length of unemployment. In Canada, the number of people unemployed for six months has risen to 257,000 people from 127,000 over the past year.

The picture is similar – if not bleaker – in the United States, where the number of Americans who have been unemployed six months or more has reached its highest point since records started to be kept in 1948.

The impact of that trend is damaging. The longer people go without a job, the more desperate they might be to re-enter the labour force, essentially trading down to lesser-paying jobs. And the more months a worker goes without getting hired, arguably the harder it is to find employment and keep résumés up to date. And the more likely a person is to give up looking.

“You have that five or six month gap on your résumé that you have to answer for,” Mr. Jones said.

For many Canadians, the additional 2.3 weeks of unemployment that has been added to that figure over the past year is not for lack of trying.

When Wade Kinley was laid off from his construction job in Vancouver, he figured it wouldn't take that long to find new work. Mr. Kinley, 33, a substitute teacher by trade, decided last fall to switch to construction since the pay was full-time and the work seemed more reliable. But as the economy bled, the projects began to dry up.

“Literally, the rug was just pulled out from under us. It happened in about a day. One day we were working and the next day, okay, there's nothing for you tomorrow,” Mr. Kinley said.

He didn't panic. With 10 years experience in the bar and restaurant business, Mr. Kinley figured that was an easy skill to fall back on. He never thought he'd spend the next six months out of work.

“It wasn't like the job listings weren't there, they were,” he said. “I went on several interviews, but I could not get hired. It was really strange. I thought, with my experience, no problem.”

What he found was the same thing the job recruiters and executive search firms have uncovered this year – reluctant, gun-shy employers who have more prospective hires to choose from than jobs to offer.

“The one thing I noticed when I did go on interviews was they would always say, oh yeah we've got 1,000 of these résumés,” he said. “They would put an ad on Craigslist and get 400 or 500 applications in the first day.”

Mr. Kinley attended to job fairs and landed seven interviews this summer, to no avail. One prospective employer, a new restaurant in town, even brought him in for a test shift, paying him with a free dinner to show what he could do. He never heard back.

“I spent the night there working and then, just nothing,” he said. “That was two weeks ago.”

Fear of a jobless recovery

The pace of job losses in Canada has slowed considerably in the past five months, suggesting the worst is over. But the same trends continue. In August, 27,000 new jobs were added to the economy, though most of them were part-time positions.

The question is how many of the lost jobs will ever come back. With almost half a million full-time jobs gone, and a net loss of 387,000 jobs in Canada once part-time jobs and self-employment jobs are plugged back in, the end of this recession is all but guaranteed to leave a trail of job loss as a lasting memory of the downturn.

Jobs aren't coming back in part because this unemployment crisis comes against a different backdrop than the ones that accompanied previous recessions. The country's manufacturing base – typically the best source of quality jobs for the middle class in a recovering economy – is a smaller percentage of gross domestic product than it was in 1991, meaning there is less of a base from which to rebuild.

“A jobless recovery is where you never get back above the water line,” said Mr. Van Horn at Rutgers. “Jobs come back but not to the same level. There are going to be a lot of these little ripple effects over time.”

When he found out his plant was closing, Abdul Simard began looking for a job immediately, but has still found nothing stable. None of his former co-workers that he keeps in touch with have found anything gainful yet either. He admits it has not been easy on the mind.

“It's not only the money,” he says. “It's the self-respect, the self-esteem. I would prefer to make an honest living.”

The few months of temporary work Mr. Simard was offered this summer came with a bitter twist.

The job, located at a manufacturing plant an hour's drive away, involved packing up the contents of that factory, which was also closing down and laying off its entire complement of staff. When Mr. Simard's phone rang, the company needed a forklift driver to load the factory equipment onto flatbeds so it could be sold.

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