Unemployment in Canada during Interwar Period - Term Paper Example

Unemployment in Canada during interwar period Rachna Jalan Throughout the past, Canada has remained a victim of unemployment. The economy severely suffered during the Great Depression period when the unemployment rate has increased to 25%. The fundamental causes for such a recession has been determined to be the negligence of the government and the too much dependence on the relief jobs instead of implementing specific and viable policies. The dry market structure contributed more to the collapse of the job structure. The data showing persistent high level of mass unemployment reveals a severe threat of Canada attaining the same level of unemployment rate. In the event of Canada reaching the same historic level of unemployment in future, the economy is likely to suffer from all those pains already faced in the past. Hence, a comprehensive analysis of the unemployment rate of Canada thus helps us to attain significant knowledge of its past, present and to some extent even the future scenario of the economy. Unemployment in Canada during interwar period An Approach to Unemployment in Canada Unemployment is that curse which can cripple an entire economy. Throughout the past, Canada has remained a victim of long-term mass unemployment. The economy suffered severely during the Great Depression Period.One of the catastrophic outcomes of the Great Depression of the 1930s, that Canada witnessed was the shocking decline in the rate of unemployment. The massive unemployment issue that has been gearing up at an alarming rate throughout all nations is once again provoking the inquisitiveness of both the economists and the historians to compare the past with the present. However, much of the unemployment spectrum of Canada both historically and presently still reveals an understudied state as compared to other nations like U.S., U.K., and France. A comprehensive analysis of the labour market of Canada is therefore, mandatory for understanding the depression and recovery in depth. Nations of North America mainly USA and Canada suffered the most due to the devastating depression. The government and the market failure were mostly responsible for the unemployment problem. Looking at the high level of unemployment that has remained constant throughout and hasn’t shown any sign of considerable change it is being worried that the history might be repeated resulting into long-term mass unemployment. Canada’s too generous policies such as relief jobs only went to encourage the growing rate of unemployment. The inequality in income distribution during the interwar periods resulted from the adverse effect of the depression on the Canadian economy along with rising long-term mass unemployment. The firms have to declare permanent layoffs of the employers due to various pressures like hike in payroll taxes, huge burden of deficits, voluminous changes in technology, intense competition, and massive structural changes. This high rate of instability of employment might take various forms such as higher threats to permanent layoff, lower tenures of jobs which might result into frequent change of jobs and careers. This results into rising percentage of people entering into “non-standard” work such as temporary works, contracts or self-employment. A well- constructed analysis is therefore required for understanding the long-term mass unemployment that has constantly been a matter of trepidation for Canada. The impact of Great Depression on Employment Market Canada became the victim of the Great Depression since 1929, when its economy suffered the maximum severity following U.S., mainly due to the commercial relations shared by the two nations and the operation of the gold standard (“Canada in the World Wars”, 2006). Canadian wheat export witnessed a tremendous setback due to the unimaginable fall in prices followed by a shocking decline of the nation’s manufacturing industries due to the cutback in U.S.’s demand and unemployment increased to 25% (“Canada in the World Wars”, 2006). This abnormally prolonged level of unemployment went far beyond the normal mechanisms of standard business cycles and led the economists away from “monetary over-investment” theories, thereby pushing towards “underemployment semi-equilibrium” theories (Eichengreen and Hatton, n.d.). Investment along with consumption fell considerably in Canada and remained much below the trend throughout the 1930s. The Canadian economy was severely crumbled by the depression leaving one out of every nine citizens on relief, which too was available not freely, but by building roads and doing other such public jobs at a very low rate, as instructed to the Canadian Department of National Defence by the Bennett government (“Canada in the World Wars”, 2006). A big strike in Vancouver in April 1935 took place as a result of poor working conditions faced by the labourers in the work camps (“Canada in the World Wars”, 2006). The Great Depression crippled the economy of Canada, making the rate of unemployment shoot up to such a height, from where it could never come down to normal level till the next decade. Causes and Explanations The negative impacts of the trade unions, lack of investment initiatives, breakdown of various staple industries, partial responses of government authorities, are all responsible for the disastrous hike in unemployment level. Dearth of initiations in investment sector was mainly due to the strong prediction of negative returns. Nobody would like to invest in a situation where huge loss is already foreseen. This resulted in mass unemployment, a trauma which remained persistent not for months, not for years, but for an entire decade. Majority of the industries producing goods in Canada were shut down due to considerable fall in the demand of the citizens as a result of prevailing unfavourable circumstances thereby contributing to the collapse of the job-market. Two predominant factors are held responsible for the alarming rise in mass unemployment (Eichengreen and Hatton, n.d.): 1. Government generated unemployment Government has been held largely responsible for contributing to the mass unemployment during those interwar years. Comparisons between unemployment statuses of U.K. and Canada reveal different results. In U.K., policies like the government’s unemployment insurance system, the relief system, and the standard unemployment benefit system were in operation. U.S.A. and Canada shared a common employment position at that period, when almost 11.1% of heads of households remained unemployed, almost 4.9% of whom witnessed relief jobs (Bradford, n.d.). The government by implementing relief jobs was actually encouraging the indolent and less talented workers to remain satisfied with the low levels of wages without having to handle heavy work pressure. The government by operating relief jobs, thus enhanced the sufferings of the hard-working labourers, whose high productivity, actually underutilized, remained confined within trivial works of the society. These talented and willing-to–work employees had very little opportunities to avail themselves with private sector jobs. The bureaucratic nature of the government for dealing with employment crisis went further to the collapse of the unemployed masses. Due to the absence of a clear and definite policy framework, the employment structure of the entire Canadian economy suffered. An impeccable effort expected from the government to aid the vulnerable unemployed was lacking. Moreover, dearth of initiatives by the economy for creating full-time employment opportunities went further for holding the system responsible for the existing condition of the job market. The illogical distribution of relief wages, by way of, paying low wages to long-term unemployed and high wages to short-term unemployed, was an issue to be criticized. 2. Market failure generated unemployment Market failure was the fundamental cause for the persistent long-term unemployment and a solid reason for keeping alive the Great Depression and its brutalities. The economy of Canada suffered severely from the atrocities of the Great Depression and remained a serious victim of long-term mass unemployment relentlessly throughout the interwar period and even after that (Green and MacKinnon, 1988). Unemployment that stretches so long, curtails equal and just distribution of such an economic disarticulation. Efforts to allot work to sufferers of unemployment resulted into failure as most of the employers gave preference to already working personnel rather than providing opportunities to jobless persons, who have been out of touch with work for a considerable period of time. An economy witnessing, mass unemployment is not expected to achieve that level of market enhancement and employment augmentation that another economy in the normal course of situations can attain. Even the most indomitable spirits to combat the long-term unemployment problem could not show any great result. Various countries like Germany could recover from the repercussions of the Great Depression due to the engraftment of several supporting policies. However, the economy of Canada, being severely affected by the Depression was not so fortunate enough to escape from the clutches of the disaster. Factors like diminishing rates of exchange, fiscal deficit and time lapse, all contributed to the collapse of the employment market. Hence, the labour markets of Canada crumpled considerably with no solutions working out for its preservation. However, with the advent of World War II, the requirement for military goods provided employment by the private sector employers to the jobless at their desired rates. Comparing labour market of Canada with that of United States during Great Depression (Amaral and MacGee, 2002): The Great Depression remained in Canada from 1929 to 1939. In terms of the collapse in productivity, output and employment, the nation shared a common picture with its neighbouring economy, the United States. However, towards the end of the depression period, the United States started experiencing a gradual recovery in the field of productivity, whereas the Canadian economy persistently remained far from any rehabilitation throughout the ten years. The country revealed no sign of improvement and that is why even in 1938, yield per head remained 30% below trend. The extent of the deflation of 1920-22 in Canada was quite identical to the 1929-33 deflation. Canada neither supported unions nor confined hours worked, which United Stated did. Though both the countries experienced the same circumstances during the interwar years, Canada remained lagging behind even in the post depression period when USA has already begun to revive its economy. Prediction of attaining the same level of unemployment in Canada The study of present scenario of employment market in Canada reveals that the severe threat of mass unemployment is feared to reach the same levels. The labour market of Canada has once again become the centre of attention for the economists and the historians. According to the Labour Force Survey of Statistics Canada, there has been a hike in unemployment rate from the middle of the 1960s (“Unemployment”, n.d.a). Although the rate of unemployment remained persistent at a level below 7% in the subsequent years of the World War II, it has not declined from the level since 1975 (“Unemployment”, n.d.a). The average rates of unemployment fluctuating between 3% to 5% remained similar prior to 1958 and between 1964 and 1969, while it shifted to 5% to 7% between 1958 and 1963 and the early years of 1970s (“Unemployment”, n.d.a). The growth of unemployment after 1975 was accompanied by an even higher increase in the number of labourers thereby rising the rate of unemployment even more (“Unemployment”, n.d.a). By the end of 1982, unemployment rate has gone up to 12.9% (the maximum jobless level since 1930) and then gradually fell down to 11.1%, 10.8%, 9.3% and 7.9% by the end of 1983, 1984, 1986 and 1987 respectively (“Unemployment”, n.d.a). Unemployment Rates of Canada for 2000-2005 (“Unemployment Rates”, 2006): Year 2000 2001 2002 2003 2004 2005 Rate 6.8% 7.2% 7.6% 7.6% 7.2% 6.7% The above chart reveals minor fluctuations between 2000 to 2005.The lowest record of unemployment rate in the last six years which came down to 6.7% in 2005 has now been surpassed by the latest data of April 2006 revealing an unemployment rate of 6.4% and a rise in Canada’s employment by around 22,000 (“Latest Release”, 2006). The recent growth in full-time job is mainly responsible for the improvement in the employment market. However, the acute problem of Canada’s unemployment existing stubbornly throughout the past cannot be overlooked due to the minor decline in recent unemployment rate. The citizens of Canada are still constantly under the threat of loosing their jobs due to increased work instability. The economy of Canada has attained the continuous character of permanent layoffs where over a million labourers are dismissed from their works every year due to any of the reasons of depression, revival or growth programs. This feature of the late 1970s remains the same in the 1980s as well as in the 1990s (Picot and Lin, 1997). As we study the unemployment trends, we come to know that opportunities for new works were quite low in past Canada. Self-employment turned out to be a major portion of employment wages that remained more inconsistent than paid jobs. Causes of unemployment in present Canada The firms are the latest cause of job instability in current Canada. In order to cut down labour costs and raise competitiveness, most of the industrial units including the profit making ones are eradicating employments the reasons of which may be viewed as follows: (Picot and Lin, 1997) Massive modernization due to sophisticated technology. Development of trade liberalization. Expansion of worldwide competition. Considerable structural change and “down-sizing”. Hike in payroll taxes forcing employers to substitute labour with technology. Huge burden of deficits or debts demanding the federal as well as provincial governments to cut-down their staff. The long-term depression of the early 1990s carried with it speculation regarding higher degrees of job loss, particularly among executive workers. The earlier recessions in Canada considered revival to be the primary cause of work separation. Comparison of the two recessions of 1989-92 and the early 1980s reveal huge modification in the economy leading to permanent loss of employment mainly due to revival (Picot and Lin, 1997). Declining rate of job-tenure has remained almost constant throughout the 1990s and instability of employment has been increasing for the young and less skilled employees (Picot and Lin, 1997). Personnel only with greater experience got the privilege of higher security of work that was quite hard to attain. Though there have been minor improvements in the Canadian job markets in the last five years, there isn’t any massive indication of rising trend when judged against former periods that are parallel in the business cycle. At present the uncertainty of employment has not gone higher than it was in the former comparable years. However, the possibility of acquiring a fresh work is still quite lower than expected. The general increase in unemployment in 1981-82 and similar episodes in the past are instances of cyclical unemployment resulting from a general decline in production and economic activity. The overall drop-down of production and economic sector that has led to the rise in unemployment in earlier years are examples of cyclical unemployment. Job vacancies are often accompanied by frictional unemployment despite the economy working at its optimum level. The demographic changes and the modifications in social legislation have been the primary cause of rise in frictional unemployment. The employment insurance policies have also been largely responsible for accelerating unemployment by encouraging idleness and half-hearted job search. Moreover, there exists structural unemployment for disparity between skills and knowledge, place and other features of finders of employment and work vacancies. The rise in the minimum wages made it extremely problematic for the unskilled as well as the fresh and young applicants due to hindrances of penetrating into specific works and lack of special and on-the-job training. Higher unemployment rates for young and women prevailed throughout the history of Canadian employment market. Predictable consequences if unemployment reaches the same level In the event of Canada reaching the same historic level of unemployment in future, the economy is likely to suffer from all those pains already faced in the past. However, the present consequences will be mostly similar but not absolutely alike. The basic consequences that remain same throughout may be discussed as follows: (“Macroeconomics”, 2005) (i) Direct Effects Decline in National Output – Labour being one the primary factors of production, the productivity of a country is largely affected by it. An abnormally rising rate of unemployment means a decline in provision of work in general thereby resulting into low National Output. The National Output, however, remains unaffected if supply of labour is substituted by new machinery or other means of technology. Loss of personal income – Long term unemployment will result into no earnings for the labourers, thereby dropping their buying capacity and reducing disposable income in their hands. (ii) Indirect Effects Negative Multiplier Effect – The jobless labourers cannot afford to purchase commodities and services which they could have bought in case of bright employment opportunities which would have left them with easy disposable incomes. For this, businesses may suffer due to lack of employment in a particular area is reduces the purchases of their products. A) Political Consequences Loss of tax revenue Rise in unemployment signifies decline in wages. This has significant effect on the tax revenue (both direct and indirect taxes) of the government. The government earns direct taxes from the wages and indirect taxes from spending on products from the wages. Hence, in order to balance the tax structure, the government will either have to increase the tax burden on the workers or curtail the expenses. Both the measures are unfavourable, as both will have a depressive impact on the financial system. B) Social Consequences (Alison & Macdonald, 1998) Poverty and Hardship Unemployment, by curtailing earnings of the labourers will leave them in a state of poverty and hardship. Due to lack of money the jobless may not be able to meet the basic requirements of life. This tremendous pressure for survival might even give rise crime rates in areas where unemployment is acute. Unemployment and Health Unemployment is responsible for resulting into various types of mental illness, such as depression. Apart from causing different chronic diseases, unemployment may also result in diabetes, pneumonia or influenza, etc. causing death. Hence, unemployment may severely affect health as it shares a peculiar relationship with it. Long-term harm for children and young people Unemployment of both the parents has serious negative impact on the lives of children. The normal course of bringing up the children is hampered, due to financial crunch brought up by unemployment. Furthermore, unemployment creates strong barriers in provision of proper education to the children. In many cases, the innocent dependants are even devoid of proper nutrition and health care. Behavioral and adjustment problems are also significant among children of unemployed parents. Moreover, it has been felt that parents with low education and skill are being paid little wages seldom find their children completing even school education. In this way unemployment condition of parents will result in long time negative effects on their children’s lives effecting their education, employment and social futures. Social Division Women with unemployed husbands find it more difficult to obtain works rather than those whose husbands are already working. This creates a wide gap between families in which both parents are working and families in which neither of the parents occupy any employment. Even single mothers generally witness high level of unemployment. The location of the people also matters in acquiring jobs. Generally it has been observed that persons residing nearer to modern socioeconomic areas are more likely to secure jobs rather than those staying in remote industrial areas where chances of obtaining employments are quite less. Employment and Retirement Prolonged unemployment of elder section of the society may result in poverty among the aged citizens of the economy in coming years. This might lead to the curtailment of accumulation of assets which has a significant role. Apart from this, the older people may also face huge differences in distribution of income due to unemployment. On one end of the economy, stand the aged unemployed with very little earning, while on the other lie the more fortunate ones with huge accumulation of wealth and other assets. From the above discussion, it should not however be considered that the consequences due to long-term mass unemployment will exactly be the same as those experienced in the past. With the opening up of modern and sophisticated industries due to high demand of luxury goods throughout the globe, prospects of increased and better job opportunities can also be identified. The shut-down of one firm is now often instantly followed by the birth of a number of other industries thereby substituting unemployment with employment. Recently the boom in service sector has also opened up innumerable employment opportunities for the jobless. Though the government has started taking up initiatives by creating increased and improved work offers for the unemployed, indomitable spirits are still required for laying down even more lucrative and viable prospects for the labor-force. However, amidst all these factors, the consequences due to probable rise in unemployment were and will remain more or less the same as discussed above. Conclusion The long-term job-loss in Canada since the interwar periods has brought with it a strong speculation of mass unemployment even for the future. The Great Depression destroyed the economy of the nation to such an extent that Canada still could not recover until recently. Unlike other countries of North America like USA that has shown remarkable recovery, Canada is still lagging behind. The prolonged unemployment rate remained more or less constant throughout the years until the last five years. Though latest statistics for the years 2000-2005 reveal considerable improvements in the employment spectrum of Canada, the fall in unemployment rate shows only a small percentage instead of a dramatic change which is required to bring back Canadian labor market into normal stage. The implementation of the gold standard, collapse of innumerable industries such as staple as well as luxury products due to loss of demand by both the Canadians as well as the neighboring country of USA. This was mainly due to the inability of the people to buy commodities. Their falling purchasing power was due to the increasing unemployment. Not only did it cause loss of tax revenue to the government but also it fetched massive poverty and hardship for the unemployed. The government itself contributed to this rising rate of unemployment by way of increased bureaucratic policies and relief jobs encouraging less skill from workers. In the later years when the unemployment insurance policy was set in, the less hard-working employees found it easier to earn little wages by producing little work. This hampered the optimum production of work from the hard-working employees. The data showing constant rate of unemployment throughout the years is causing an intense probability of history being repeated. This time, it is not the Great Depression but various other causes for the threat. These may be due to intensive use of technology in place of human resources, massive structural changes, indomitable challenges, worldwide competition, tremendous pressure by the government due to hike in payroll taxes and voluminous burden of deficits. The government is now trying to bring down the unemployment rate by undertaking various programs and initiatives for ensuring higher employment opportunities. This improvement is mostly being observed in the service sector with the coming up of more hotels and restaurants, call-centers, etc, thereby increased employment opportunities. However, a lot more needs to be done to enable Canada to attain its optimum employment market. In the dearth of the required indomitable spirits, the probability of Canadian unemployment to reach the same historic level appears true to some extent. In case the nation does attain those shocking levels of unemployment, the consequences which are likely to follow will not be totally different from those experiences in the past. The same results of lower national output and personal income, harm to own health and children’ s future will be noticed. From the above study, we can therefore obtain an outlook of the repercussions which unemployment caused to the economy of Canada in the past. The nation is still striving to recover completely from the wounds of unemployment, as the inability to do so might again push the economy into the harmful clutches of unemployment. References Alison, M., & Macdonald, F. (1998). The social consequences of unemployment. Retrieved May 31, 2006, from http://www.bsl.org.au/pdfs/social.pdf Amaral, P., & MacGee, J. C. (2002). The Great Depression in Canada and the United States: A Neoclassical Perspective. Review of Economic Dynamics. Minnesota. Bradford, D. L. J., (n.d.). Facets of Interwar Unemployment: A Review Essay. Harvard University, Cambridge. Retrieved May 31, 2006, from http://www.j-bradford-delong.net/pdf_files/Interwar_Unemployment.pdf Canada in the World Wars and Interwar Years. (2006). Wikipedia, the free encyclopedia. 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