Full Employment in Canada in the early 21st Century

Canada’s national unemployment rate of 6.3 % in 2017 was only “low” compared to what Canadians have gotten used to in recent decades. Between 1946 and 1975, Canada’s unemployment rate averaged 4.7% and since then the labour force has become much better educated and considerably older, which should have reduced the unemployment rate significantly. This paper asks what “full employment” would look like in Canada in the early 21st century, how we might we get there and why we might want to. It begins by discussing why “full employment” became a policy priority of government in Canada after 1946, but then disappeared after 1980 – collateral damage in Canada’s successful war on inflation. It then addresses the political economy context created by the thirty-year stagnation of earnings produced by that policy decision. Recent econometric evidence on the possibility that lower unemployment might cause inflation is discussed. The long term costs of inadequate labour demand and the available macroeconomic policy tools that could produce full employment are then surveyed. The paper concludes that full employment can and should be reinstated as a major policy objective of Canadian governments.