The true nature of our "labour shortages"

Ottawa is abuzz these days with talk of Canada’s so-called “labour shortages.” Overstimulated and overheated economies like ours tend to feature exuberant demand for new jobs that are only marginally viable.But before looking at job vacancy data in more detail, let's first define what a labour shortage is. A labour shortage is a job that cannot be filled at the current wage. It’s important not to forget the last part of that sentence, “at the current wage.” In a market economy, employers are free to adjust the compensation they offer. Similarly, workers are free to adjust the wage they are willing to work for. A worker might decide to shift from a low-paying occupation, business or industry to a higher-paying one.

This “price mechanism” ensures the economy is always allocating scarce resources (workers) to their most productive use. Rising market wages incentivize firms to invest in capital and technology to automate tasks, move into higher value-added activities that make better use of labour, or to curtail unprofitable activities. Some firms might struggle. Other more productive firms, perhaps producing an entirely different or better product, will thrive.

Policymakers need not be afraid of competition in labour and product markets. “Creative destruction” is how economies become more productive and innovative; it is also how societies improve people’s living standards over time. Want to interfere with the market mechanism? Then be prepared, as a country, to have labour not put to its best use. Low real wage growth is sure to follow.

Canada had around 850,000 million job vacancies as of 2022 Q4. The overwhelming majority are in entry-level positions requiring little or no qualifications or experience, and paying low wages. Around 300,000 vacancies require no minimum education and offer an average wage of $18.85 per hour. A further 200,000 require only high school completion, with an average offered hourly wage of $20.80. These market wage rates are not significantly above provincial minimum wages.

Of the remaining vacancies, 220,000 require a trade or college certificate and offer an average hourly wage of $27.55. Another 91,000 require a bachelor’s degree, offering an average hourly wage of $39.30. Only 23,000 (2.6 per cent of all vacancies) require post-graduate qualifications, offering $47 per hour on average.We can also look at the composition of vacancies by experience required. A whopping 450,000 positions require less than a year of experience and offer an average hourly wage of $21. Another 250,000 seek one to three years experience with an average offered hourly wage of $24.40. Only 78,000 vacancies require three to four years experience ($32.20 per hour), 61,000 require five to seven years experience ($38.80), and just 14,500 (1.7 per cent of all vacancies) seek more than eight years experience ($58).

Statistics Canada data tracks 500 specific occupations. The top twenty job vacancies by occupation account for 44 per cent of all vacancies. The top five are: food counter attendants (58,000 positions, seven per cent of all vacancies); retail salespersons (48,000, six per cent); registered nurses (28,000, three per cent); nurses’ aides and orderlies (23,000, three per cent); and truck drivers (22,000, three per cent).Only two of the top 20 occupations require a university degree: registered nurses and information technology specialists. A further six require a college or trade certification or specialized training: cooks, social workers, practical nurses, carpenters, early childhood assistants, and automotive mechanics. The remaining 12 of the top 20 occupations require some high school completion, on-the-job training or have no formal requirements.

Labour force growth, not productivity growth, remains at the centre of the federal government’s thinking about how to expand the economy’s productive capacity. The government has recently doubled down on its thinking, citing “labour shortages” as a reason to raise temporary and permanent immigration to new record levels.However, the idea that immigration is the right policy lever to address broad-based labour shortages in an overheated economy is dubious. Immigration adds to both labour supply and labour demand – for the obvious reason that a newcomer is at the same time a worker and a consumer. Furthermore, many newcomers bring dependents who may only be consumers.

The government’s strategy is like believing Christmas dinner will be made easier if you invite more people because they can help with the washing up. Why does the federal government lack confidence in the price mechanism to resolve labour market imbalances? Young Canadians entering the workforce today already face the unhappy prospect of the lowest projected growth in average real incomes among the 38 advanced OECD countries over the next 40 years. If the government intends to expand the labour supply explicitly to fill low-skill, low-experience, low-paying job vacancies, it is helping to keep Canada on that dismal path.

David Williams, DPhil, is Vice President of Policy at the Business Council of British Columbia.