When the Future Sinks

by Francis Maindl

Over the last few years in Canada, we have seen on the news the term “Generation Screwed” or “Generation Lost” being used to describe young Canadians’ precarious financial future. It portrays today’s generation of young Canadians who despite being the most educated generation of Canada’s history, is currently facing poor employment prospects, a virtually unpayable public debt and a progressive deterioration in quality of life.

The numbers don’t add up

Since the financial crash in 2008, one out of seven young Canadians aged between 15 and 24 is unemployed—a number twice as high as the general population’s unemployment rate. Although it is true that historically the proportion of unemployed youth/unemployed Canadians remained around the 2:1 ratio, the current economic parameters and national financial context have changed, all in the disfavor of younger Canadians.

For the lucky ones who have found jobs, the salaries today are simply insufficient and reveal a clear deterioration of living conditions. Indeed, instead of increasing, the wages earned in real terms by 15-24 age bracket have decreased by about 10% since 1981. When combining this fact with the reality that housing and food prices have continuously increased since that time, you end up stuck with young Canadians who cannot save, invest or consume in the same way that the previous generation was able to.

In addition to wages being relatively lower, a growing number of young Canadians entering adulthood do it by working part time jobs. Young Canadians are facing an employment market that doesn’t hold enough full time positions. Since the late 70s, the proportion of young Canadians who were working full-time jobs consistently dropped. According to a CBC report, from 1976 to 1978, the full-time employment rate averaged 76 per cent for men aged 17 to 24, and 58 per cent for women in the same age group who were not in school full time. The numbers have reached in the mid-2010s 59% for men and 49% for women.

To this rather grim portrayal of the millennials, it would be fair to counter-argue with something like ‘but this generation stays longer in school to get their masters and their PhDs and they get better jobs with better salaries in the end’. But what we see today is that even with their diplomas, they are struggling. Based on a 2014 Statistics Canada report, we find out that the more young adults are educated, the more they are unemployed. In a Canadian Policy Research Networks report, it is estimated that 1 out of 3 university and college graduates aged between 25 and 29 end up in a low-skilled job. And when they graduate, 60% of young Canadians enter the job market with a debt that is on average 27,000 $CAN.

When you add up all these numbers, well you come up with more numbers that tell you exactly how that translates into life. Based on the numbers from the 2011 census, we know that 42% of Canadians aged between 20 and 29 still live with their parents, a 50% increase from a generation ago. Understandably, young Canadians today now wait until they are 30 before getting married and women wait until they are 30 before having their first child.

How did we get there?

Skills mismatch is the cause most often cited by economists and it is caused by a disconnect between the education institutions and the job market. Indeed, a survey conducted by City & Guilds Centre for Skills Development found that 55% employers believe there is a skill crisis. .

But if you look at the evolution of all the important economic indicators over the last few years in Canada, it is clear that the youth issue is only the tip of the iceberg. The problem in Canada seems to be more generalized. Here are some indicators:

– 2% drop of the Labor Participation rate since 2008

– 1.5% drop of the Annual GDP Growth rate since 2012

– 20+% increase of the Debt to GDP ratio since 2007

– Rise of the Private Debt to GDP ratio to over 240%

labor force participation rate

private debt to GDP

GDP growth

A 2015 analysis from the reputed Fraser Institute offers an explanation to the employment crisis in Canada. Between 2003 and 2013, while public sector employment increased by 22.6%, private sector employment only grew by 10.7%. Stating a basic economic fact, the report puts it simply: “The private sector is the main source of wealth creation in an economy, and of the resources needed to provide public goods and ultimately generate public sector employment”. The report cites a research done on 194 countries between 1988 and 2011 demonstrating that high rates of public employment do not reduce overall unemployment rates on the long run. The Fraser Institute concludes on this note: “simple exploratory correlations suggest that for Canada’s provinces over the 1990 to 2013 period, larger public sector employment shares are accompanied by lower growth rates of private sector employment growth, and show a flat relationship with per capita GDP growth rates”.

With the increase of capital going to government jobs that do not add real productivity and the timid development of the private sector, the result is that the economy’s growth slowed down and there are fewer jobs available on the market. In numbers, the GDP only grew annually by 1.70% on average since 2005, the annual average productivity growth over the last 10 years has been below 1% and the national public debt is as the same level as it was in the mid-90s.

Where is this all going?

When you look into the 2016 report published by the Canadian Ministry of Finance on long-term economic and fiscal projections, it is difficult not to feel bad for the younger generation. The report shows how the Canadian economy will develop until 2055 and all the indicators are rather alarming. Apparently, the best case scenario doesn’t even see the annual average GDP growth go above the 2% threshold and only sees us start lowering the debt to GDP ratio past the year 2035. If this period sees the same productivity growth and government spending that Canada has had over the last decade (2006-2015), then the debt will just get out of hand. With the working population falling by 50% in the next decades, we now know that we will either have to go through tax increases or through a difficult period of austerity.

And the current administration doesn’t seem interested in stopping the hemorrhage. We saw the Trudeau administration breaking their initial campaign promise and now planning to add $100 billion to the national debt during their 4 years in office. So with this money that we don’t have, the Liberals are investing $8.4 billion in First Nations communities, $250 million a year for the 25,000 Syrian refugees he pledged to take in, $2,3 billion in affordable housing, $675 million for the CBC and more than a billion for art programs across the country.

To look at it from the angle of inter-generational equity, it seems that the people of yesterday just keep on taking the money of tomorrow’s workforce. Overall, the recent mix of provincial and federal governments haven’t had the courage to admit to Canadians that they cannot afford the public services they have been providing.

The result is that a lot of young Canadians are unemployed, underemployed or they are leaving the country (at a higher rate than the rest of the population). In addition to the terrible fiscal legacy they will inherit, the low-employment and low-salary plight that is currently hitting ‘generation screwed’ might also lead to lower wages and higher unemployment in the future.

Although there is very little to be hopeful about, young Canadians can at least comfort themselves in the fact that they are not alone. The World Bank says that the global youth unemployment rate was also around 14% in 2014.

But that’s about the only thing there is to cheer about…

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