Employment in Canada is up by a million … but that is hardly enough

Why hasn’t the output gap closed despite stimulative monetary policy and the unemployment rate decreasing? Miles Corak outlines the employment situation.

Economics for public policy

“Employment is up by one million since the recession ended.”

A statement like this may indeed be a big talking point when Statistics Canada releases the results of its monthly Labour Force Survey on Friday.

While a million more people at work sounds like a lot, the Canadian population has also increased by roughly the same amount with the result that the fraction of Canadians working has been pretty well unchanged for the last five years, and has yet to return to rates before the recession.

A million is a big number, but it’s not enough to signal a complete recovery from the recession.

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Sleepwalking into The Upside of Down

“Our societies’ rising connectivity and speed have a final disturbing effect. In the past, cascading failures usually occurred within single systems—like electrical grids or banking systems—but now these failures are more likely to jump system boundaries. If, for example, terrorists use a new genetically engineered organism to contaminate a Western country’s food supply, the disruption will spread in a flash beyond the food system to our larger economic and political systems. Because today’s communication technologies vastly multiply our emotional reaction to shocking events—something we saw in full force in the wake of the 9/11 attacks and anthrax letters—this kind of terrorism could easily cause a financial panic and even civil disorder, despite the fact that the threat posed to any one person from the attack might be very small. The scale, connectivity, and speed of our modern food-supply system could also spread a new bio-terror organism far and wide before authorities have figured out what’s going on, increasing the chances that it would jump from the food system to affect ecological systems in nature.”

Excerpt From: Thomas Homer-Dixon. “The Upside of Down.” Knopf Canada, 2006. iBooks.

Do you get rewarded for ‘risk’?

Treasuries (TLT), corporate bonds (LQD), and stocks (SPY) returns after 7 years (Source: Tom Brakke @researchpuzzler )

Pension plans take note: Above is a chart posted by Tom Brakke (Twitter handle: @researchpuzzler ) and his post is here (Hat Tip: Tejus Sawjiani). My point in posting his fascinating chart is that pension plans are forced into asset allocations that favour riskier asset classes but is this the right approach? We cling to a paradigm of greater risk giving you greater reward but if this supposition were true then why has the investment industry been quick in pushing low volatility products? Whether we like to acknowledge it or not, macro counts for a lot more than investment analysts believe. Value investing works when macro factors align not in spite of those factors. By the same token, the resurgence in equities after the financial crash of 2008 has been due to flow of funds aided and abetted by the reflationary policies of central banks. (I have written on my personal thoughts vis-a-vis Bernanke’s version of quantitative easing here.) Will the visible hand of central banking continue to reflate equity markets or will funds flow back to US treasuries and corporate bonds as the global economy faces the reality of overcapacity, low effective demand and household deleveraging?

Related posts: 2014: Equities Meltup and 2014: A Deflationist’s Perspective