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Another Look at Labour Market Mismatches

By Jock Finlayson

Labour market mismatches occur when the qualifications and skills of the available workforce don’t align completely with those sought by employers.  In a complex economy characterized by a constantly shifting competitive forces and ongoing changes in technology, some degree of mismatch is inevitable.  But when large numbers of workers (and would-be workers) lack the skills that employers are looking for, the economy as a whole suffers – with total production below the levels that would be achieved if talent mismatches were less widespread. By the same token, there is a cost to the economy when workers are unable to find employment that makes effective use of their particular skills, experience and credentials.

In Canada and other advanced economies, many employers regularly say they cannot attract enough workers with the right mix of skills.  Figure 1 shows the percentages of firms with more than 10 staff who claimed they faced skills shortages in 2016, based on the results of a major international survey conducted by the Manpower Group. [1] At 33%, Canada was roughly in the middle of the pack among the countries examined.  As seen by employers, skill shortages were most serious in Japan and least common in Norway and the Netherlands.

 

One way to get a handle on the nature of the gaps between labour market demand and supply is to estimate the incidence of “under” and “over” qualification among employees. The former refers to situations where workers lack the qualifications necessary to be fully productive in the job.  At the other end of the spectrum, some workers clearly possess credentials and experience that exceed what’s required in their job – i.e., they are “over-qualified” for their current positions. 

Figure 2, taken from a recent OECD study, summarizes the extent of under- and over-qualification among workers in 30 countries.[2]  In aggregate, Canada’s performance is poor, with one of the highest rates of overall labour market “mis-qualification” among the countries surveyed.   Canada has more over-qualified than under-qualified workers, a pattern also found in several other advanced economies. 

 

Further analysis by the OECD indicates that over-qualification is particularly likely in the case of employees of smaller firms and also among those holding part-time jobs.  In many developed countries, including Canada, field-of-study mismatches are an important factor driving the broader phenomenon of labour market mis-match.  Field-of-study mismatches occur when a worker has a qualification – typically some type of post-high school credential – in a different field than is required for his/her current job.

One way to make the job market in Canada function better is to reduce the extent of field-of-study mismatches in the post-secondary education and training system that feeds the supply side of the labour market.  Among other things, this suggests the need to further expand capacity in high-demand occupations such as information technology, data science, engineering, and various areas of technical and trades training.  But another priority is to improve the literacy and quantitative skills of the workforce as a whole, since the research confirms that inadequate basic skills also contribute to both skill shortages and job market mismatches.