A gap in the Canada-U.S. labour markets has become a chasm and the cheap Canadian dollar has had a lot to do with that development, according to a report by CIBC World Markets’ economics division.

“Canada is headed for its best year of job creation in almost 15 years, while the U.S. will likely not see any jobs being created,” says senior economist Avery Shenfeld. “Despite two out of three quarters showing strong economic growth, there are simply no jobs being created in the U.S.,” he added.

The manufacturing sector shows the widest jobs chasm and closest competition between Canada and the U.S., and where the declining Canadian dollar has played a key role. In U.S. dollar terms, Canadian factory workers are now paid more than 20% less than their American counterparts. Where once Canadian workers seemed expensive in the early 1990s, they are deemed relatively cheap now.

When labour is pricey and margins are tight, there is a significant amount of pressure in the U.S. to make do with existing staff. However, in Canada, that’s not quite true as the share of Canadian GDP going to profits has risen relative to the U.S. profit share, reflecting the margin improvement associated with selling export goods in U.S. dollars but having the some of the costs in Canadian loonies.

“Don’t underestimate, then, the degree of policy tightening in Canada that would be entailed in an appreciation of the Canadian dollar next year,” says Shenfeld. “The wide gap between U.S. and Canadian yields is likely to favour the Canadian dollar once the global economy shows any sign of healing. A 70¢ dollar would make those Canadian workers less of a bargain. The Bank of Canada has lots of reasons in a poor external environment to stand pat on interest rates now. And, even when times improve, look for the Canadian dollar to do a lot of its work in cooling off Canada’s red-hot labour market.

To view a full copy of the report please visit: http://files.newswire.ca/256/Dec06_02.pdf