Labor market of Canada can cool down without the rise of unemployment

According to Bank of Canada Governor Tiff Macklem, an overheated labor market can get back to normal without the growth of unemployment. This declaration was made before the next increase in credit rates in December.

The level of inflation decreased from a high of 8.1% to 6.9%. But that's still above the central bank's 2% target. Underlying price pressure doesn’t ease. According to forecasts from the central bank, the prices will stop growing in the middle of next year.

Macklem said that it isn’t a recession but a strong slowdown of economic growth. He added that if the monetary policy is tightened to fight against inflation, the level of unemployment will increase. But since the labor market is inflexible with many unfilled vacancies, such a market can be cooled down without a rise of unemployment, as happens during a recession.  

Then, Macklem indicated that from the 1980s the recession has been accompanied by growing unemployment, and during the current fall, it is much smaller. In June, the unemployment rate was at a record low of just 4.9%. In October, it was 5.2%, but the labor market still has unstable tension.

As per Macklem, there are the first signs of softening of the quite tight labor market. The growth of salaries gets stabilized. 

The Bank governor agrees with new expenditures of the federal government in the amount of several billion dollars. Last week, Finance Minister Chrystia Freeland submitted the report with these expenditures and said that won't complicate the work of the central bank.

As for the experts' October assumptions on economic growth and inflation, he confirms that the budget projections and spending included in the autumn economic report won’t matter much for macroeconomics. 

As Marlem said, in the future, the supply side of the labor market can be resolved via immigration, better training, and an increase in the workforce through digitalization. All this will ensure more stable growth and reduce inflationary pressures.