Understanding and unpacking Saskatoon’s unemployment rate: How low can we go?

Economy Talks from Fallon’s Desk

According to the latest figures from Statistics Canada, Saskatoon’s unemployment rate is at an almost decade low.

Right now, we’re sitting at about 4.1% unemployment. That’s a pretty substantial drop from an average of 7% over the past three years. At its highest, unemployment hovered around 12.6% (thanks for that, COVID-19).

Before we can unpack our city’s unemployment rate, we first need to understand what the term means. Suddenly I’m transported back to my economics classroom, Mr. Kay feverishly scribbling something like this on the chalk board (remember chalk boards?):

“An employment rate is a measure of the extent to which available labour resources (people available to work) are being used – i.e., the ratio of the employed to the working age population of 15 to 64.”

A little wordy, sure, but Mr. Kay always managed to get his message across. A great guy, that Mr. Kay.

For Saskatoon to have a 4.1% unemployment rate means that our ratio (unemployed to total labour force) is pretty low. But you may be wondering: how low can we go?

Lower? I think so.  

Yes, 4.1% is a positive indicator of a good economy, but we have – and, I believe, can – do better. If we travel back to 2006 (when we were at the start of a boom) our unemployment rate hit a record low of 3.4%.

With our economy expected to heat back up over the next 12 months, what’s to say we won’t match this record low.

Unemployment trends strongly correlate with how confident businesses are in the provincial or national economy. In growth mode, high business activity boosts that confidence, encouraging business owners to scale their operations and hire more people.

This is something we’re already seeing in Saskatoon. Don’t believe me? Ask anyone trying to hire right now. They’ll tell you.  

Something else to consider is whether there’s an “ideal” unemployment rate. Should we fear a lower unemployment rate that heats up an already hot labour market?

The answer is tricky since there are pros and cons to a super-duper low unemployment rate. On the plus side, the more people that are employed, the more people spend, and as a result, the further our economy grows. And everyone deserves a job. On the downside, a tight labour market can push up inflation and make hiring difficult.

Consider, too, that a 0% unemployment rate is unattainable in any economy over the long run. This would mean our labour market is completely inflexible: workers can’t quit their current job, nor can they leave to find a better one. Even though this is possible in theory, in practice it’s just not realistic; there are always folks looking for work and/or between jobs.

Most economists will argue that the “ideal” unemployment rate for healthy economic growth is between 3.5% and 4.5%. At 4.1%, Saskatoon is right in this range.

With an unemployment rate that’s already low, and has the potential to go even lower, it points to a strong and growing economy. And that’s what we all want.

That’s what’s on my mind; let me know your thoughts.