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The new employment reality
Michael Hlinka
I looked at the December jobs report released several weeks ago and reached this conclusion: The employment market has been fantastic in this country for at least a couple of years now. Across all regions-no exceptions-there has been robust job growth.
This is in the face of a much stronger Canadian dollar, which impacts manufacturing, and some resource prices, which have actually moderated in the past few months. But that doesn't seem to matter. Opportunities are being created, but the critical point here is they're almost exclusively in the services sector.
In the past year, there have been over 8,000 new jobs in finance and insurance, 12,000 in education, and 15,000 in healthcare. Generations ago, no one worried too much about unemployment, because for all intents and purposes it didn't exist in an agrarian economy. Everyone on the farm contributed to producing food, and there were only limited manufacturing and service industries supporting that effort.
Then, developed countries transitioned into a manufacturing-based economy, where the majority of consumer spending was devoted to spending on physical goods-such as cars. But there's a problem with a manufacturing-based economy: it tends to be cyclical with upswings followed by downswings.
Once families had bought their new automobiles, they didn't need to replace them for several years, and there was a ripple effect throughout the whole economy.
No intervention required
As a result, there was a theory about the proper role of government in moderating that business cycle. Among its chief proponents were John Maynard Keynes and Canadian-born John Kenneth Galbraith. They believed fiscal policy, which means taxing and spending, should be counter-cyclical. In other words, when the economy was "naturally" weak, government would intervene to make it right. And when the economy seemed to be over-heating, government would put the brakes on it.
As well, central banks would adjust interest rate policy accordingly, lowering rates when times were bad and raising them when times were good. That was the theory, anyway. It was explicitly interventionist and required a great deal of discretion by public officials.
But the new service-based economy is doing something quite wonderful. It is making government irrelevant! By its very nature, a service-based economy is not as cyclical as a manufacturing-based one. Therefore, what we should properly require of our government-and central bank, for that matter-is just to stay out of the way!
Government should balance budgets. In fact, it should be constitutionally mandated! And the Bank of Canada should grow the money supply at the same rate of economic growth, no more or no less.
My argument is full employment is the natural state of a service-based economy. It tells me that if nothing's broke, there isn't anything to fix.
Michael Hlinka, based in Toronto, provides daily business commentary to CBC Radio One and a bi-weekly column syndicated across the CBC network. He also conducts financial planning courses.
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