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How Inflation and Interest Rate Hikes Put Youth Employment at Risk

To learn more about inflation, the recession and their impact on youth unemployment, download the Canadian Council for Youth Prosperity’s State of the Sector Report.

As the Bank of Canada continues to cool the economy to make life more affordable, youth employment will be a likely casualty. It’s happened before and is on track to repeat.

How We Got Here

When the COVID-19 pandemic hit, the economic shutdown was a shock. The GDP plummeted and the government was forced to jump in with aid programs like Canada’s Emergency Response Benefit, the Recovery Sickness Benefit and the Emergency Wage Subsidy to ensure the deepest recession since The Great Recession was short-lived.

When “outside opened,” it did so with supply chain shortages and Canadians flush with pandemic savings. Then came the wave of retirements and “The Great Resignation” that contributed to the lowest unemployment rate in history.

These factors and others combined to put pressure on prices and the cost of living started to rise. Inflation peaked last June at 8.1%, well above the Bank of Canada’s 2% annual target. The central bank acted by raising interest rates. The overnight rate increased from a low of 0.25 in March 2022 to 4.5% today.

Why Youth Employment is at Risk

As businesses grapple with increased borrowing costs, the unemployment rate is expected to rise. Youth, who have double the unemployment rate of adults, are usually laid off first.

It costs less to let them go and employers tend to keep those who can take on multiple roles to fill gaps. Because youth have not been in the workforce as long, they often do not have the benefit of experience that can bring job security.

Watch: How the Bank of Canada Tries to Tame Inflation

Government Programs Have Helped

In the 1970s and 1980s, double-digital inflation triggered interest rate hikes much like now. Stagflation stretched into a recession and it was an all-around terrible time for the economy and youth employment.

Strategies like training, counselling and relocation were inadequate so the government stepped in with job creation programs like Opportunities for Youth, the Local Initiatives Program and the Local Employment Assistance Program to help students and disadvantaged youth. They became more insulated from cyclical unemployment but were still vulnerable to big shifts like technological advancements that can make some jobs obsolete.

In the 1990s, when jobs for young people depended heavily on education and became more part-time in nature, government programs like Youth Service Canada and Youth Internship Canada provided skills training and job experience.

After the Great Recession hit in 2008 and 2009, the government evolved and expanded that program, initially intended for disadvantaged youth and youth living on reserves, to all young Canadians to develop skills and gain experience. The success is debatable.

What Happens Now?

Programs to support youth employment need to evolve and better adapt to the cyclical unemployment that comes with changes in the economy and the changes in structural unemployment that come with technology.

To learn more about inflation, the recession and their impact on youth unemployment, download the Canadian Council for Youth Prosperity’s State of the Sector Report.


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