Canada’s jobs numbers look good, but they’re even better under the surface, according to a report from CIBC Capital Markets.

“Good headline numbers come and go, but beneath the surface, where job market demons usually hide, things are also improving,” said Benjamin Tal, deputy chief economist at CIBC, in a labour market report. “And, where they aren’t, it’s largely due to structural forces—well beyond the realm of monetary policy.”

Statistics Canada reported last week that the unemployment rate in December was at its lowest in 40 years. The 420,000 jobs created last year marked the best pace since 2002. Average wage earnings also increased, and more higher-paying jobs were created than low-paying ones in 2017.

Read: December unemployment rate could push BoC rate hike

The report identifies youth unemployment, unemployment duration and the impact of the 55+ age demographic as the job market’s three key vulnerabilities.

Youth unemployment

Youth unemployment has been falling faster than the unemployment rate among adults, the report says, and the real rate is better than the numbers suggest.

“If it was not for the ‘unemployed’ high school students, the Canadian unemployment rate in December 2017 would have been 5.2% as opposed to the headline number of 5.7%,” Tal said. “The fact that more high school students decide to focus more on school and less on part-time employment is not a factor that shows real labour market slack. It shows that people are busy preparing for the labour market of tomorrow.”

Unemployment duration

While the rate at which people become unemployed is at a record low, people are staying unemployed longer. But “the increase in long-term unemployment is largely due to a mismatch in the labour market—way beyond the domain of monetary policy,” Tal said.

The 55+ demographic

Workers over 55 represent the fastest-growing segment of the labour market, but they’re disengaging from the labour force by working fewer hours each year, the report says.

While the reduction in the average hours worked is often seen as a sign of labour market slack, Tal said it’s a demographically induced trend that the Bank of Canada can’t do anything to reverse.

The main challenges for 2018 will be minimum wage hikes and NAFTA negotiations, Tal said. While the impact is unknown, the labour market is well positioned for those challenges.

Read the full report here.

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