Is Canada's 'skills gap' really a non-issue?

Making the case for a looming labour shortage

The worker factory

Camosun College AV Services

A number of business groups, labour consultants and politicians are warning of a looming labour market crisis in Canada. The threat is two-pronged: a wave of baby boomers about to hit retirement age and a growing “mismatch” between the skills job candidates possess and those employers require. The Canadian Chamber of Commerce says there could be more than one million people unqualified for available positions by 2021.

But this week economists at TD Bank said the concerns are overblown. The report, written by deputy chief economist Derek Burleton and three others, suggests Canada’s job market has been relatively robust in recent years. “There is some evidence of tightness across certain occupations and regions, but the analysis failed to provide a real smoking gun,” the authors wrote.

Crisis averted? Not necessarily. Rick Miner, a consultant who has written several reports on Canada’s labour market, including one in 2010 called “Jobs without people, people without jobs,” says the TD report is mostly focused on the current labour market, which he concedes doesn’t look nearly as bad as it did just a few years ago. His most recent research shows that worker shortages have indeed become less acute in some occupations. That’s because Canadians over the age of 55 are lingering in the workforce and a weak economy has caused some employers to dial back hiring. More people are also getting a post-secondary education.

The problem is there’s no guarantee those mitigating trends will continue indefinitely, whereas Canada’s shifting demographic profile isn’t going anywhere. It’s also unlikely that Canada’s research-focused (as opposed to skills-focused) post-secondary education system will suddenly start producing thousands of highly-skilled workers. Miner writes in an email:

They [TD’s economists] are reluctant to project into the future, but then go into explanations of what could happen to minimize any labour force shortages. That is really the point of my current and earlier research. We can either proactively attempt to make changes to increase the size of the work force/skill levels or we can assume, as TD does, that economic principles will take care of the problem and the market will adjust itself. I am less willing to assume that economic principles/theory will rectify the situation the way we would like to see it occur.

The problem could be rectified by off-shoring more jobs in cases where an appropriate labour force was not available. It could also be solved by moving business to jurisdiction with better labour supplies. One could also decide to use capital to substitute for labour, which might have some good points but could negatively impact on employment unless the new technology was made in Canada. There are others (Canadian Chamber of Commerce, Economic and Social Development Canada, Labour ministries in B.C., Alberta and Saskatchewan, numerous industry associations, IBM, Engineers Canada, etc.) that say there is a labour shortage and it is constraining their growth. I guess the biggest question is whether classical economic approaches are the ones we should use to understand the future.

Miner says his data continue to show a projected labour shortage though 2031, with labour market mismatches being driven by supply-demand issues, underemployment and geographic disparities.

Getting a handle on the issue is difficult due to a dearth of labour-market data (it doesn’t help that the federal government decided three years ago to scrap the long-form census)—something TD readily admits in its report. For example, TD noted there’s scant evidence of rising wages in Canada, which one would expect to see if employers were having a tough time finding workers to fill positions. That’s even the case in Western Canada, where labour shortages are well-documented. “A number of factors could be holding back wages, including competitiveness pressures and the preference of employers to use non-wage channels to address hard-to-fill vacancies,” the TD economists wrote. “We do not rule out the possibility that the data are under-estimating wage pressures, as the figures we reviewed do not include bonuses and other incentives, but instead account for just hourly wages, tips and commissions.” Also a possibility: employers have been leaning on Canada’s Temporary Foreign Worker program to fill positions without resorting to wage hikes. That’s likely what’s occurring in the restaurant sector, a big user of temporary foreign workers, where consumers can be sensitive to even small increases in the price of a cheeseburger.

Many in corporate Canada remain convinced that the labour pool needs to be retooled. In this week’s issue of Maclean’s, Bombardier CEO Pierre Beaudoin talks about the importance of convincing more young people to enter the skilled trades, which can lead to high-paying jobs in cutting-edge industries such as aerospace. “We try to learn from our other plants in the world,” he says. “One of the advantages that we see in Europe is these very well-developed apprentice programs—especially in Germany and the U.K. We need to put an emphasis on developing these trade schools again.”

Canada’s labour market may not be in crisis at this very moment, but that doesn’t mean there aren’t significant challenges ahead. And there’s little harm in taking steps to improve Canada’s competitiveness in the global economy (we rank among the bottom half of OECD countries when it comes to productivity). Even TD’s economists say as much. “Canada can do much better to improve the efficiency of its labour market,” the authors wrote. “Greater labour market information and other targeted strategies and policies would help in this regard. Furthermore, a more skilled workforce and efficient labour market is a vital component to achieving and sustaining improved productivity and economic growth over the long haul.”