Labor shortages – here for a while

By Dian Cohen
Labor shortages – here for a while

“Even before the pandemic disrupted training programs and upended labour markets, Canada struggled to maintain a steady flow of skilled tradespeople. Attempts to attract young people, women and immigrants to the field have repeatedly fallen short, leaving many trades unable to replenish vacancies left by retiring workers.” So write Naomi Powell and Ben Richardson in a recent Royal Bank report. As far back as 2018 the Business Development Bank wrote that, “We do not expect labour shortages to get better for at least a decade.”

There are many well-known reasons: retiring baby boomers have subtracted a million workers from the workforce in the last 10 years. Canada’s population growth has slowed following border restrictions to curb the spread of COVID-19. The pace of population growth to June 2021 was less than half the growth measured a year earlier and the slowest population growth since 1915/1916 during the First World War. Canadians’ desire to have children has been declining for years and the pandemic has added a “baby bust” to the equation.

The virus has exacerbated what has been an ongoing, albeit widely- unappreciated problem: slower growth of the working-age population and fewer people in the labor force means a slower growing labour force. Not so good for economic growth. Slower economic growth slows the growth of government tax revenues. Not so good for health care spending and other social programs such as Old Age Security and cheap daycare. Not so good for balancing the budget. Not so good for Canadians’ expectations of access to more services.

There maybe some upside for the pandemic – it has forced many more of us to understand that we need a whole new approach to economic health and we need our governments to develop policies that will put us on a better track. With more than 900,000 job vacancies in Canada in the third quarter of 2021, no doubt people who want to work will find something they want to do.

The new reality is that workers are seeking much more than higher wages in their post-pandemic careers. They’re looking for a better working environment. If they have children or parents to help, they’re looking for more flexibility in work scheduling. This has proven fairly easy to do in professional, scientific, and technical fields where working from home is easier. So while higher wages will be part of the equation, firms looking to hire from within a limited talent pool will also need to place emphasis on more flexible employment offerings.

Even as we acknowledge the labor shortage, solutions are at hand. Higher planned immigration rates will help – Canada may want to get ahead of the curve as many other countries are vying for the same talent.

Investments in machinery will also help — techniques like 3D printing can fill some gaps left by non-existent workers. Similarly, artificial intelligence algorithms are today analyzing data and making decisions in many different work settings, from healthcare to manufacturing to insurance to retail product rollouts. The pandemic has accelerated the move to robots – to clean floors, to scan data, to move products around warehouses. Some food chains in the US are experimenting with robots that can flip burgers and make chicken wings. Kiosks for self-checkout are replacing non-existent cashiers. All this technology will both boost the productivity of existing workers and eliminate the need for many others.

Some of these investments will take time to get into your neighborhood stores and restaurants. People just thinking about getting into the work force would be wise to take note of areas where they are now or soon-to-be unnecessary.
In the meantime, labor shortages are here to stay for a while, putting a cap on the productive potential of the economy, slowing growth and keeping upward pressure on costs.

Dian Cohen, C.M., O.M., (economist)

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