Saturday, August 16, 2008

Vancouver Labour Market - VHB Guest Post

Vancouver's labour market is going through an unprecedented hot streak. Unemployment rates are the lowest since at least 1976. Employment rates (which measure employed age 15+ to population age 15+) are more than 2 points above the previous high.

But what is underlying this boom? Is it broadly based? The answer, as you'll see below is no. Definitely no. It is almost *entirely* a construction boom. All data available here.

Let's start with checking out the number of jobs. I've made an index set to Jan-2001 as 100 for construction, real estate-leasing, and total employment less construction and real-estate leasing.

Construction has boomed from 100 to 240 over the past 7 years. The rest of the economy? only from 100 to 118. The new Realtors out there don't account for a lot--only 36% growth.
But, there are raw employment counts. Maybe our population has grown enough to account for this? No. As VHB regulars know, population growth has been fairly moderate (even anemic) over the past 10 years.

Below is a graph of employment to population ratios for two specific industries, construction and real estate-leasing. Construction has gone from 3% of the population to over 6%. Real estate employment, perhaps surprisingly, hasn't moved much at all.

Ok. Now for the grande finale. Let's put this together. Let's imagine a scenario where the employment to population ratio in construction and real-estate leasing had stayed at its 2001 values instead of growing. In other words, we're looking at what would have happened if there had been no construction boom from 2001-2008. The analysis assumes that the new construction employment took people from being out of work and newly employed them, rather than just moving people from one industry to another. (If everyone employed in construction were previously employed somewhere else, then construction actually had no impact on total employment, right?) On the other hand, we are not accounting for the spillover boom into retail etc. caused by newly employed construction workers splurging on toys and joys.

Well, without the construction boom, employment to population would have stayed bouncing around between 58 and 61%. Instead, we see that it went over 64%. This is quite a difference.
Let's move on to the perhaps more familiar Unemployment rate. Unemployment rates take the number of people not working who are looking for work and divide that by the number of people who are employed or unemployed and looking. Again, the scenario we're imagining here assumes that all of the employment boom came out of the ranks of the unemployed; that if the boom ended tomorrow all of those construction guys would be unemployed and wouldn't find jobs elsewhere. Also, it assumes that there would be no spillover effects onto retail.

The results are pretty stunning. Without the construction boom, unemployment would have stayed bouncing around 8-10% instead of falling to under 4%, as it actually did.
Looking forward, what does this mean? Well, to sustain our employment rate, we need to sustain construction. If there is a drop off in housing starts, the labour market will get worse. If the government doesn't start building new big projects to replace the work finishing up on Olympic projects/canada line/etc. then the labour market will get worse.

-- Vancouver Housing Blog


Etienne de Cochon said...

This was a very illuminating post. Thanks VHB.

jesse said...

I don't know what "RE/Leasing" includes but property/construction financing is a direct effect of the housing boom and should be included in your analysis. Unfortunately the employment reports don't separate these activities from the rest of the finance industry.

The RE/Leasing stat is indeed surprising. We know the number of registered Realtors in BC has markedly increased since the late '90s. That is either because many are part-part time and as such possibly accounted for under another category or because other components of this category have experienced falling employment.

Thanks to VHB and mohican for summarizing and analyzing this data for us. Remember, if logical argument doesn't work, try shouting; it gets people's attention.

M- said...

Interesting-- I was just talking about this with a coworker the other day. Wow-- I didn't realize that without the construction boom, unemployment would/could go up that high!

Joel said...

I believe one scenario going forward might be a continued lowish (say lower than 7-8%) unemployment rate while out of work construction workers just retire.

Another trend interesting to watch is to what extent people stop migrating to Greater Van once things get worse.Further, the extent to which recent new arrivals return home in the face of bleaker prospects. I smell a probable reduction in net migration.

Amy said...

Will the planned extension to SkyTrain take up the slack after the Olympcs?

Van Housing Blogger said...

Amy. Not to pick on you specifically, but many people WAY overestimate the economic impact of a bridge or a skytrain line. These things pale in comparison to the residential construction.

Let's be firm with numbers here. In January 2001, there were 137,500 BCers employed in construction. As of July 2008, that number is 288,800, for a gain of about 151K. Granted, not all of these guys are working on downtown condos.

I don't know much about building skytrain lines, but I am pretty sure it doesn't employ 5K people; let alone 150K

VancouverGuy said...

If we wanted to estimate an impact of the future capital projects in the Province, we could grab the historical non-residential capital projects inventory and then compare it to the current non-residential capital projects inventory. We could then use employment from an existing non-residential capital project to estimate the employment effects of these new projects (I know the employment for some non-residential capital projects). Does anyone have stats on the non-residential capital projects inventory from 2001 onward, including planned and in construction?

milo said...

fig.4 - is there a typo?
Empoment Rates i/o Unemployment Rates
great stuff

John said...

Guys, I love your work, but chart 3 skews the facts a bit don't you think? 2001 was essentially a recessionary period, so it's a convenient starting point to choose to magnify your point.
I believe we have been in an insane RE bubble, and that unemployment is going to rise, just trying to throw a bone to the bulls.

Van Housing Blogger said...
This comment has been removed by the author.
Van Housing Blogger said...

Milo: you're right. The fourth figure should have 'employment' not 'unemployment' in the title

John: thanks for your suggestion and the positive tone of your criticism.

If you use a different 'baseline' scenario for the emp/pop ratio, all that happens is that the green line shifts up (or down) vertically.

Imagine taking the baseline scenario as the 1990s average emp/pop rate for construction. There were both booms and busts in the 1990s, so the decade average is likely pretty representative; I suspect you'd agree.

For the 1990s baseline, all that happens is that the green line shifts up by 2.1 percentage points. So, in 2001, the 'assume emp/pop was the same as 1990s average' unemployment green line would be HIGHER than the purple line, as a return to the 1990s average would mean MORE construction employment. By 2008, of course, the green line would be back below.

So, it wouldn't have any impact on the relative gap of purple and green between 2001 and 2008.

Why did I choose the 2001 baseline? Because the question I was trying to answer related to how much of the current labour market boom is related to construction. Using the previous trough seems like a reasonable place to start to measure the boom.

If the goal were to pick what would happen over the long-run, I think you're right that using the 1990s average would be the right one.

However, I suspect that in 2010-2012 we're head to another trough. That's why this graph is useful. Because of this analysis, I think I have some logical basis to expect a return to double digit unemployment rates in BC.

This suggests that there will be a lot more 'must sells' on the market. This suggests that prices will not be super sticky over the next 5 years; substantial drops are quite possible.

I can't post the revised spreadsheet from here; maybe I'll do it tomorrow.

RentingSucks said...

This construction boom has skewed a lot of things. Enrollment in universities is down and high schools recommend going into trades with university as an afterthought. It's hard to compete with those construction wages. I sometimes think we are living in bizarro world. Thankfully its becoming clear that we're not in a new paradigm. I was starting to wonder.

As far as I can tell the only widespread profession in Vancouver that can afford current prices is construction. I heard a guy bragging on the radio a few weeks back that he had calloused hands and dirt under his fingernails and made $165k a year which was more than most doctors. This will be one of the feedback loops on the way down as construction workers lose their jobs and prices have to adjust to regular wages.

tulip-Mania2 said...

Construction and government spending, no doubt has been the main driver of this manufactured economic marvel, along with cheap money.

It is interesting that for the stimulus is still there and the market has stalled and prices are retreating.

Leads me to speculate the demand has virtually dried up, otherwise the remaining greater fools would have by now rushed in with their pre-approved 40year mortgage.

Anecdotally, I hear many of the spec condos were actually purchased by the construction workers themselves.

If that is the case, taking possession of a spec condo the same day you get your lay off notice will cause higher demand for beer.

Grown men will weep.

Tick Tock, Tick Tock

chrissg said...

165K a year? Seems unlikely to me. Certainly it is not the norm. Here's StatsCan's survey of construction wage rates.

Its from 2006, so I wouldn't think adjusting for 3-4% per year for two years. Anyways, the highest paid workers (crane operators, elevator installers), StatsCan reports wages of 36$/hr. Assuming two years of inflation, say 40$/hr. Not a bad wage, but not quite six figures.

Here is similar info from

(Jobs beginning with the letter 'C', so lots of construction there)

Pretty sure a good anaestesiologist will make far more. And they get to pick the music in the OR.

jesse said...

"If the government doesn't start building new big projects to replace the work finishing up on Olympic projects/canada line/etc. then the labour market will get worse."

The other thing to keep in mind is that, as it refers to "Vancouver" and "Housing", the BC labour market is not one contiguous blob. While construction could continue at its current pace, the actual construction projects may not be where the people currently are.

Currently there is a disproportionate amount of construction spending in the Lower Mainland due to Olympic projects or pseudo-Olympic projects. Looking at the planned projects on the capital project list, there is a marked shift away from the Lower Mainland towards other parts of the province as projects put on hold for Vancouver 2010 are queued up. What this means is that people must migrate to these new construction jobs and that can leave holes in the local economies and housing markets they leave behind.

Either that or the anticipated capital projects need to do a massive re-jig, or construction spending must increase even more than planned to compensate.

Strataman said...

"165K a year? Seems unlikely to me."
Not really but there is some truth to what you say. My own income has gone up from some $90,000 annum to 230,000 annum however as a point in your argument my hours have increased from 40 per week to approx 80 we are overwhelmed with work. So has the rate of pay gone up? NO but the hours of work has increased massively almost to the breaking point of human endurance actually. I'd actually rather drop to $90 K again and have a life! :-)

Arwen said...

I don't see why you're all worried about employment. Isn't the need for a job a thing of the past with all our Get Richez Quick Real Estate Bux?

I haven't, you know, dipped into the market yet: but there's a porta-potty I'm looking at that's sure to appreciate over time. I'm goin' to retire by, uh, well (calculating) the year 5105.

patriotz said...

Strikingly similar to San Diego up to 2006, and we all know what happened after that:


oh please said...


Thanks as always for the analysis. Have you ever taken a look at what impact household size has on construction? The trend in this part of the world is downward AFAIK, which may help explain the strong upward trend in construction despite anemic population growth. It may be a very small factor but I think it's worth a look.

And it'll be interesting to see if household size goes back up when the local economy contracts (as it always eventually does).

Alan said...

re: governemnt needs to start some big projects to keep the economy going via construction jobs ...

Why would it have to be construction jobs? We have 150K under-employed musicians and other artists here working in restaurants and taxi cabs. If government - or society in general - provided proper employment for these people, we would have a permanent creative workforce. Plus we could really claim "World Class City" status. We don't get that from 150K construction workers hanging out in sports bars.

Van Real Estate Crash 2008 said...

"And it'll be interesting to see if household size goes back up when the local economy contracts (as it always eventually does)."

You mean as when Jimmy, grade 10 drop out, looses his$35.00/hr unskilled job in construction but still has a $700.00 truck payment;or when Jane looses the $28.00/hr traffic control job, and has to go back to work at the cafeteria for $11.15/hr.

jesse said...

"You mean as when Jimmy, grade 10 drop out, looses his$35.00/hr unskilled job in construction"

Which is why oversupply with unsustainable construction employment is so dangerous for housing. It may not just be prices that are eroded but rents as well and that puts fundamental value that much lower in a trough.

Richard Neuman said...

Great Post. Does this mean that the unemployment rate outside of RE/Construction is averaging 8%-10%, or am I misinterpreting the data?

Dave said...

I think your assessment should also consider the following:

1. Demographic shift – A big percentage of the construction workforce is beyond, at or near retirement age.
2. Major projects already on the books – The list of major projects keeps growing.
3. Cyclic low for baseline – The amount of construction activity prior to 2001 was painfully low due to the NDP and the leaky condo issue. The sustainable level of construction should have been much higher.

Draw you own conclusions from there.

jesse said...

Dave, check out the first table on page vii (9 of 136). Vancouver under construction is currently 54% of the total, whereas proposed is only 40%. Either construction spending must increase or jobs are going to be moving elsewhere in the province. That's good news for other areas of the province (like, say, Victoria) but not-so-good news for the Lower Mainland.

Trevor said...


A few points (after a curious scanning) of the document you've cited:

1) This list has a heavy contribution from uncommitted "wish list" projects - see P6
2) Project permitting peaked between 2006-2007, depending on the category = 1 to 2+ years ago
3) More on above - examine P8 - lots more projects completed than started in early 2008...examining that trend a bit further...
4) Examine the projects started from P55 to P79. LOTS of them complete from mid to end 2008 and most of the 'mass' labour will end before the project ends.

Van Housing Blogger said...


Interesting question. The answer is no, however. I don't think there is such a thing as an 'industry specific' unemployment rate. Why? Becuase we don't know what industry the unemployed are in because they are, well, unemployed.

The 8-10% UE rate you see in the graph says, what if you took all of the 'extra' construciton employment and shifted it to being unemployed rather than construction employed. That's a different beast than an unemployment rate for industries outside construction.

Rob said...

VHB, is there a way to get access to your "invite only" blog?