Is Canada taking the wrong approach to the labour shortage?

Good discussion of high vs low wage market needs. However, a discussion of productivity and per capita GDP missing, and the current immigration policies are working against increasing productivity as Skuterud and others have argued:

Does Canada need more immigrants with less education to do low-paying work, when many of their highly educated peers are already toiling in such jobs?

As employers struggle to find workers, a new report is calling into question Canada’s efforts to use immigration to deal with labour shortages.

“The labour shortages we’re seeing are mostly concentrated on the lower-skilled jobs, but we know that there’s already a very large proportion of immigrants with university education working in these jobs,” Statistics Canada researcher Feng Hou, co-author of the joint StatsCan and immigration department report, told the Star.

“It’s important for policymakers and the public to decide if we want to continue to select highly educated new immigrants to work in lower-skilled occupations or increase (the number of) immigrants with lower education levels.

“It’s a choice we have to make.”

The stakes are high and could have a lasting impact on the Canadian labour market — changing the calibre of the future workforce, suppressing wages or discouraging employers from investing in innovation and improving work conditions.

There could also be unexpected societal consequences.

“A significant move away from highly educated immigrants would weaken the tendency for the children of immigrants to attain high education levels, a major success for Canada compared to other countries,” cautions the report.

“In many countries the population generally has a more positive attitude toward highly-skilled immigrants than the lower-skilled. Any change that negatively affects Canadians’ perception of immigration could put a damper on its success.”

Canada raises immigration intake

As of March, Canada’s unemployment rate was at five per cent. Meanwhile, job vacancies have trended down 731,570 across all sectors since last June, despite a slight increase earlier this year.

The growth in unfilled jobs was in transportation and warehousing (+14,500) as well as health care and social assistance (+12,400), while the numbers dropped for professional, scientific and technical services (-6,200; -10.9 per cent), manufacturing (-4,200; -6.0 per cent) and educational services (-3,800; -14.1 per cent).

To tame the tight labour market, the federal government has raised the annual intake of new immigrants, with a goal of bringing in 500,000 a year by 2025, relaxed the rules to usher in foreign workers and passed a new law to prioritize potential immigrants in targeted sectors, including those in lower-skilled jobs previously ineligible for permanent residence.

A one-time program was also launched to grant permanent residence to 90,000 international students and foreign workers in essential jobs in Canada — many in the low-skilled spectrum of the caregiving and food production and distribution sectors — to ease the crunch.

Concerns have been raised regarding the extent to which immigration should be geared toward filling higher or lower-skilled jobs, and whether the country is on the right track.

How are newcomers to Canada faring?

Based on census and the government’s immigration database, the new study examined how newcomers who came under different programs fared and if they were employed in jobs at par with their education and skill levels. Although the analysis was based on 2016 data, Hou believes the findings would be similar today.

Among all immigrants aged 20 to 64, 60 per cent were in higher-skilled jobs and 40 per cent in lower-skilled positions, comparable to the ratio among their Canadian-born peers, at 64 per cent and 36 per cent, respectively.

(Higher-skilled jobs are defined as requiring a minimum of two years of post-secondary education and above; lower-skilled jobs only require some high school education and on-the-job training.)

Although immigrants played a key role in the labour market at all skill levels, accounting for 24 per cent of all employment, they also are more likely than their Canadian-born peers to be at the bottom of the ladder. 

According to the 47-page report, 34 per cent of immigrants selected via the economic category (including principal applicants, spouses and dependants, and in Canada since 1980) were employed in lower-skilled jobs.

Even among longer-term economic immigrants who have been in Canada for more than a decade, 31 per cent were in lower-skilled positions. 

This group of immigrants, selected for their higher education and skills, is a major provider of lower-skilled labour. It accounted for 53 per cent of all adult immigrants, and almost half (46 per cent) of the immigrant labour force in lower-skilled jobs.

Economic immigrants who were chosen under the Provincial Nomination Program, which allows provinces to select their own permanent residents, had the largest share in lower-skilled jobs, at 40 per cent. That compared to 28 per cent among those in the federal skilled worker program and 15 per cent in the Canadian Experience Class.

“Traditionally, economic immigrants in particular have been selected based on a ‘human capital model,’ which orients immigration towards higher educated individuals,” said the report. “However, not all economic immigrants occupy higher-skilled jobs.”

Cyclical factors are driving labour market conditions

The study referred to the many factors contributing to the pandemic-induced labour market conditions: worker fatigue; concerns among workers about COVID-19 infection; strong government financial support to individuals; the decline in immigration levels; and a possible desire to change jobs.

Given most of these drivers were cyclical, it recommended the temporary foreign workers program may be a more reasonable solution to the labour crisis amid current economic uncertainty.

However, critics say the solution is not about bringing in fewer low-skilled immigrants but focusing more on credential recognition in order to make the best use of all immigrants’ skills.

“The business cycle has not led to fewer temporary foreign workers. The use of temporary foreign workers through different immigration streams continues to go up,” said Naomi Alboim, who served senior federal and provincial government roles in immigration and labour.

“They say they hope it will resolve itself when the pandemic abates. But the pandemic is still with us. It’s not necessarily good for our economy just to continue to bring in temporary foreign workers, nor is it good for the temporary foreign workers.”

The report cited the boom and bust of the higher-skilled tech and oil sectors as examples of the temporariness of cyclical labour market, but Alboim said it failed to recognize the “ongoing needs” for lower-skilled workers in areas such as skilled trades and health care that can’t be easily replaced by automation and technology. 

“Even if the high interest rates result in a reduction of economic growth and perhaps less people being required, we know that there are sectors at the lower end where we are going to continue to need people,” said Alboim.

“I’m not saying the majority of people coming into the country should be selected on the basis of lower skills. We should just have a little bit more of a balance so we don’t have a bifurcated immigration system that says, ‘Higher-skilled. Permanent. Lower-skilled. Temporary.’”

‘We do need … a mix’

The success of the economic immigration program comes down to the match between newcomers’ skills and the jobs that need to be filled, said Rupa Banerjee, Canada Research Chair of economic inclusion, employment and entrepreneurship of Canada’s immigrants.

It’s an irony that low-skilled immigrants in many ways actually have employment appropriate to their education and skill levels while their highly educated and skilled peers struggle to get compatible jobs and become disillusioned with the decision to come to Canada.

“What’s really important is to look at this through a more nuanced viewpoint. It’s not as cut and dry or black and white as simply we don’t need as many low-skilled immigrants,” said Banerjee.

“We do need to have a mix of different skill levels coming into Canada, but we still have this problem of job skill mismatch and that continues to be a major challenge that we need to continue to work on.”

Source: Is Canada taking the wrong approach to the labour shortage?

Skuterud: Canada’s worker ‘shortage’ is an illusion, and bringing in cheap labour doesn’t help

Needed commentary:

If your inclination in hearing about Canada’s labour shortage crisis is to ask, “Where did all the workers go?” you have the wrong economic model in mind.

Despite our aging population, the percentage of Canadian adults participating in the labour force was 65.7 per cent last month, identical to what it was in October, 2018, and July, 2016, after accounting for usual seasonal variations.

In terms of absolute numbers, Canada’s labour force now stands at 20.8 million workers, the largest it has ever been.

Rather than not enough workers, the issue is that the prices of the goods and services that workers produce have increased faster than their wages, motivating businesses to hire more workers and sell more.

Canada’s current tight labour markets overwhelmingly reflect increases in the demand for workers, not a decline in their numbers. And the solution is not to satiate that demand with cheap labour, which undermines labour productivity and average economic living standards in the population.

Why do so many people interpret current labour shortages as “not enough workers”? It is because in their minds the jobs that need to be done in our economy are fixed and the job of policy makers is to make sure there are enough workers to fill all the slots, so the economy does not fall apart.

But employers’ demands for workers are constantly fluctuating and evolving in response to factors within the economy, including relative prices, interest rates, technological advances and consumers’ preferences and incomes.

In 1921, one-third of Canada’s workers were employed in agriculture. After more than 100 years of innovation in farming equipment, less than 2 per cent are.

Very few jobs, if any, are truly essential.

Once we recognize that the jobs employers seek to fill in the economy are fluid, it all becomes clear.

Throughout this pandemic era, I have been tracking Canadian labour-market tightness, measured as the number of job vacancies per available job seeker. After hovering between 0.2 and 0.6 in the 2015-20 period, the ratio surged in January, 2021, and peaked at 1.1 job vacancies for every job seeker in June, 2022.

It is not a coincidence that this increase in labour-market tightness lines up precisely with movements in the relative prices of the goods and services that businesses sell and the wages that workers are paid.

Canada’s headline inflation rate – Statistics Canada’s measure of the annual change in consumer prices – stood at 1 per cent in January, 2021, but increased rapidly, peaking at 7.9 per cent in June, 2022.

After accounting for changes in the mix of jobs, I estimate that workers’ wages were growing at an annual rate of 1.7 per cent in January, 2021, which sluggishly increased to 3.7 per cent by June, 2022, far behind the pace of increases in consumer prices.

In other words, workers’ wages have not kept pace with the prices of the goods and services they produce and consume.

Workers aren’t disappearing; what’s happened is employers’ profit incentives to hire more workers have increased dramatically.

And as the gap between the growth in consumer prices and workers’ wages diminished after June, 2022, so did the hiring appetite of Canadian businesses. With one exception, the number of job vacancies declined in every month between May and November, 2022, resulting in a 21-per-cent reduction in total job vacancies in six months.

In November, 2022, the most recent data we have, there were 0.8 job vacancies for every job seeker, down from the June peak of 1.1.

No doubt, Canadian labour-market tightness remains elevated, making life difficult for some businesses. Competing for scarce workers with other businesses and retaining the ones you have requires improving wages and working conditions, which eats into profit margins. And where competition is especially fierce, it can pose existential risks.

But business failures are a healthy feature of a well-functioning economy. Starting a new business is necessarily risky. It ensures scarce capital is invested where its expected returns are highest and that the businesses that survive are the ones that utilize their workers most efficiently by, for example, investing in new technologies to maximize employee productivity.

These competitive pressures are not a good thing for businesses struggling to turn a profit, and those businesses will plead for government support.

But not coddling the business lobby by, for example, expanding wage-subsidy programs or easing access to low-skilled temporary foreign workers, including foreign students, is good for worker productivity, workers’ wages and average economic living standards.

Mikal Skuterud is a professor of economics at the University of Waterloo and the director of the Canadian Labour Economics Forum.

Source: Canada’s worker ‘shortage’ is an illusion, and bringing in cheap labour doesn’t help

Restaurants and stores say government aid is to blame for a labour shortage — but the hard data tells a different story

Of note, given current discussions on whether our immigration system needs to be rebalanced towards the lower skilled and paid:

Relaxed health rules are allowing thousands of restaurants and stores to reopen. But employers are already complaining they can’t find enough workers, especially in hospitality and retail. Some are offering signing bonuses, redistributing tips and making other special efforts to attract staff.

Employers like to point the finger at government income supports that helped people through the pandemic, like emergency recovery benefits (now extended to October) and expanded eligibility for EI payments. Employers complain these programs reduce the incentive to accept low-wage, irregular work in restaurants and shops. Many also want Ottawa to expand the Temporary Foreign Worker program, so they can access low-cost labour from other countries.

To be sure, it is an operational headache for restaurants and stores to reconnect with former employees after months of closure, and they’re all trying to do this at the same time. But the hard data does not support the claim of a generalized labour shortage.

After all, unemployment remains elevated: the latest Statistics Canada reportpegged the official rate at 7.5 per cent. And other pools of hidden unemployment (including people working very short hours, and people who left the labour force during the pandemic) push the true unemployment rate towards 15 per cent.

Wages in stores and restaurants remain very low, and are not rising, which should happen if labour was genuinely scarce. In hospitality, for example, the median wage is $15 per hour (barely matching the legal minimum in many provinces), and average weekly earnings are just $500 per week (reflecting inadequate hours of work as well as low wages).

There is no sign wages are improving, despite anecdotes in the media. To the contrary, wages have grown more slowly in retail and hospitality than the overall economy since the pandemic. Thus the wage penalty for workers in these sectors is getting worse, not better.

When your industry offers less than half the going wage, you shouldn’t be surprised you have trouble attracting workers. That’s like me offering $100,000 for a Lamborghini (less than half the list price), and then crying shortage when no-one will sell me one.

It’s no mystery how to recruit and retain a more stable workforce: offer better pay, stable shifts, decent benefits, and improved training and safety. Inadequate and irregular hours are actually a bigger disincentive than low hourly wages (almost half of hospitality staff work part time). Reorganizing schedules to allow predictable shifts and more full-time roles would support genuine career opportunities in these industries, rather than a culture of lousy precarious work.

Other countries have shown that service sector work can offer stable middle-class career paths. Canada could do the same, but only if we prevent employers from taking the easy out — namely, providing them with still more desperate workers willing to work for any wage. If governments respond to complaints about a labour shortage by cutting income supports or importing migrant labour, that will only short-circuit the improvements in job quality these sectors ultimately need.

Only once did Canada’s economy truly run out of workers. That was during the Second World War, when a massive, government-funded war effort ended the Depression and put every able worker into a productive job. We aren’t anywhere near that situation today, but we could be, if we wanted to. We could launch an ambitious post-COVID national reconstruction plan, featuring massive and ongoing investments in green energy, affordable housing, and human and caring services. That would create hundreds of thousands of jobs, end mass unemployment and improve living standards in the process.

But creating hundreds of thousands of good jobs is actually the last thing low-wage employers want. That would only make it all the harder for them to recruit cheap, desperate labour.

In sum, there’s no “labour shortage” in Canada today, nor is one on the horizon. Governments should ignore these phoney complaints, and instead encourage employers to respond to staffing problems like any other hard-to-find commodity. When something is truly scarce, smart businesses find ways to use less of it (in this case through automation and efficiency measures). They emphasize quality over quantity. And, at the end of the day, they pay more.

In the long run, this will drive productivity growth, innovation and better jobs. And that’s a good thing, not a bad thing.

Jim Stanford, director of the Centre for Future Work in Vancouver, is a freelance contributing columnist for the Star. Follow him on Twitter: @jimbostanford

Source: Restaurants and stores say government aid is to blame for a labour shortage — but the hard data tells a different story