Canada is experiencing a severe labor shortage, but economists say it’s not all the pandemic’s fault — it’s the inevitable culmination of a seismic demographic shift decades in the making.
“This is the slowest moving train on the planet. It was predictable 60 to 65 years ago and we haven’t done anything about it,” said Armine Yalnizian, an economist and Atkinson Fellow on the Future of Workers. “We knew this transition was going to happen.
The numbers behind all these help-seeking signs are staggering.
According to Statistics Canada, the unemployment-to-vacancy ratio — a key measure comparing the number of Canadians looking for work to the number of jobs available — is currently hovering at historic lows in every province. In fact, the ratio is significantly lower now than it was before the start of the COVID-19 pandemic.
It’s not because fewer jobs are opening—remember the help-wanted signs? It’s that there are fewer workers to fill them. And the reason for this, according to economists, can be found in the post-war baby boom.
Construction workers prepare a form in downtown Toronto in May. According to Statistics Canada, their industry is among the hardest hit by the current labor shortage. (Alex Lupul/CBC)
There aren’t enough substitutes
Although those 55 and older are steadily leaving the Canadian workforce — an exodus that some economists say has been accelerated by the pandemic as many older workers opt for early retirement — there simply aren’t enough younger workers to replace them.
In fact, labor force participation among those aged 25-54 reached 88 percent in May, up more than one percentage point from February 2020, before the pandemic took hold in Canada.
“This is what happens when the baby boomers finally start exiting stage left and there aren’t enough people coming in from stage right,” Yalnizian said. “In fact, we have a higher proportion of the working age population than ever before.”
Armine Yalnizian is an economist and Atkinson Fellow on the Future of Work. (Christopher Katsarov/Atkinson Foundation)
That contradicts the theory that some “grand resignation” among working-age Canadians, many of whom have benefited from income support because of the pandemic, is to blame for all these job vacancies, according to Ian Lee, an associate professor at Carleton University’s Sprott School Business.
“I found that very suspicious because unless you’re independently wealthy … most of us have to have an income to survive,” Lee said. “It just didn’t make sense.”
“Your first suspicion as a labor economist is, are people no longer in the labor force?” said Gordon Betcherman, professor emeritus at the University of Ottawa’s School of International Development and Global Studies. “But that’s not the case. It’s back to the levels we had before COVID.”
Employee market
Instead, economists say the data point to the emergence of an employee market where workers enjoy enormous leverage over employers.
“There’s no denying this trend that we’re in, where the balance between job seekers and job vacancies has definitely shifted,” Betcherman said.
According to Statistics Canada, this has led to almost unprecedented labor shortages in almost every sector of employment.
There simply aren’t enough people willing to do poorly paid work that is marginal at best. – Armine Yalnizyan, economist
In particular, the construction and manufacturing sectors are struggling to recruit skilled workers, closely followed by accommodation and food services, which includes hotels, restaurants and bars.
“People find other places to work. There simply aren’t enough people willing to do poorly paid work that is marginal at best,” noted Yalnizian.
“Workers now have a lot more choices,” Lee agreed. “If you have more choices and you don’t have to work in that industry, you’re going to go and work in an industry where there’s a better career and where the wages are higher and the hours are more predictable.”
That could force employers in certain industries to raise wages, Lee said.
“I don’t think the demand for these jobs is going to go away. It’s not,” he said. “That suggests to me that we’re going to see some pretty serious wage inflation in these industries in the coming years.”
The restaurant sector is also struggling to attract new employees, as many choose higher-paying jobs with better working conditions. (Paige Parsons/CBC)
A salary increase is expected
According to Yalnizian, this new competitive environment means employers in certain sectors will have to raise wages if they hope to retain skilled workers.
“We’re losing people who are trained as early childhood educators because we won’t pay them more than we pay pet groomers. Well, why would they stay if they can find a better job in another sector?”
This is borne out by Statistics Canada data showing the reservation wage — the minimum hourly rate at which job seekers are willing to accept a position — surpassing the current wage offer in almost every sector, while Canadian workers have historically been willing to settle for less .
Economists believe there are other possible outcomes — increased automation to fill the vacuum left by labor shortages, for example. Some industries could also bring in more temporary foreign workers to help fill gaps at the lower end of the labor market, potentially blunting the gains made by domestic workers.
Ian Lee is an associate professor at Carleton University’s Sprott School of Business. (CBC)
But Yalnizian said raising wages could help erase some of the inequities caused by a labor market that for years has paid some workers well and others poorly.
“If we really improve wages and working conditions, especially at the bottom, we could create the conditions to create a more sustainable middle class that can actually afford to buy things.” That’s what we’ve been missing for a while,” she said.
“Population aging can be our friend, not our enemy. But we need to treat it as more than just a labor shortage for businesses. We have to treat it as an opportunity to turn every job into a good job.”
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