Academic Literature, Politics & Policies

Canada / Is the widespread assumption that Canada is suffering from a growing shortage of labour true?

“When the Royal Bank of Canada was recently caught up in a maelstrom of bad publicity over its use of temporary foreign workers, it led politicians and pundits to scrutinize and question the growing use by Canadian firms of imported, short-term labour” Kevin McQuillan in ALL THE WORKERS WE NEED: DEBUNKING CANADA’S LABOUR- SHORTAGE FALLACY (Adapted chosen excerpts by Job Market Monitor to follow).

The Royal Bank was accused of misusing a system designed to help employers who could not find Canadian workers by using it, instead, to find cheaper foreign labourers to replace higher-cost Canadians. But the incident raises a bigger question than simply how one bank makes use of Canada’s Temporary Foreign Worker Program (TFWP): Whether the program is, in fact, interfering with the natural supply and demand responses of the labour market. And if we want to make better use of available Canadian labour, the time has come for the federal government to start cutting back on the use of TFWP.

The number of admissions under the TFWP has nearly tripled in 25 years, from 65,000 to 182,000 in 2010. The primary justification for the expansion of the program has been the widespread assumption that Canada is suffering from a growing shortage of labour. Yet, it is hard to find any evidence to support this belief.

What Canada is arguably facing is a widening imbalance between the skills that the labour market demands and the skills that workers are equipped with, as well as between where the jobs are and where available workers live. There are looming worker shortages in certain sectors while other sectors have an overabundance of available workers. Improving the balance in the labour marketplace does not require an increase in the labour supply. Indeed, the TFWP is sometimes being used to fill jobs with foreign workers in regions that already suffer from relatively high unemployment rates. Temporary Foreign Workers could be distorting the labour-market forces that would bring together more Canadian workers and jobs.

The data in Figures 3 and 4 on job vacancies provide additional insight. The figures on job vacancies are based on the responses of employers surveyed by Statistics Canada. Employers are asked to report the number of vacant positions in their organization on the last business day of the month. The data on unemployment come from the monthly Labour Force Survey and show the number of persons who are not currently employed but are actively seeking work. The results point to significant differences between industries and across regions in the demand for workers. The data in Figure 3 point to potential shortages in areas such as health care, as well as in professional, scientific, and technical services; many of the jobs in the latter category are linked to mining and the oil and gas sector. At same time, there appears to be a significant oversupply of workers in other industries, most notably in educational services and arts, entertainment and recreation. For education, in particular, there are more than 10 unemployed persons for every available position. Narrowing the focus from industries to specific occupations,

Benjamin Tal in “The Haves and Have Nots of Canada’s Labour Market”  identifies 25 occupations where skill shortages are evident. Tal notes that employers may often allude to shortages in various occupations when asked in a survey. He argues, however, that a true shortage will cause employers to respond by increasing wages to attract qualified applicants. In his list of occupations with significant skill shortages, he includes only occupations with “rapidly rising wages and low or falling unemployment.” The three leading groups of occupations in this list are managerial positions, professional positions in health care and the sciences, and skilled trades in primary industries. By contrast, clerical jobs, skilled and semi-skilled positions in manufacturing and services, and teaching positions showed clear signs of oversupply.

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Not surprisingly in light of the persistent regional differences in unemployment rates, the job vacancies data, shown in Figure 4, also point to pronounced regional differences in the demand for labour, with the western provinces showing low ratios of job-seekers to vacancies, while the eastern provinces have higher ratios. Overall, the evidence suggests that Canada faces an imbalance in the labour market, evidence of specific excess demand rather than a generalized excess demand for labour.

What can we conclude then about labour shortages in the Canadian economy? As Canada emerges from the great financial crisis, it seems clear that important sectors of the Canadian economy are struggling to fill vacancies in key positions. This is a pressing issue not only for businesses looking to hire, but for the economy as a whole. At the same time, there is no evidence of a general labour shortage in the Canadian economy that requires dramatic efforts to increase the supply of labour. The longer-term picture is harder to evaluate. Canada will certainly face a decline in the rate of labour-force growth as the baby boom generation retires, but this is unlikely to result in a general labour shortage. Rather, the country is likely to face two on-going challenges in the labour market. First, like other advanced economies, Canada will need to compete for top talent, especially in management, science and technology.

Second, as sectors of the economy rise and fall, there are likely to be temporary shortages in various industries. These are both important concerns, but the strategies needed to respond to these challenges are different from what might be required in the case of a general labour shortage.

A strategy is needed to better equip Canadian workers with the education, training and skills that employers are looking for, and to find ways to better mobilize unemployed workers from regions with lower demand for workers, to provinces with a greater need for workers.

With no evidence that any increase in immigration is necessary, Ottawa should consider holding the current immigration rate steady, and re-evaluate only when the business cycle warrants — possibly returning to the disused policy of increasing immigration rates in boom times, but lowering them during slower economic periods. Admissions under the Temporary Foreign Worker Program should be reduced, and provinces should bring some influence to bear on universities and colleges to align their programming, and the incentives to draw students into certain programs, more directly with labour-market needs.

It is puzzling, indeed, to see a significant influx of relatively low-skill temporary workers into regions with high rates of unemployment. Figure 7 shows the number of unemployed in New Brunswick from 2002 to 2012 as well as the number of foreign workers in the province on December 1 of each year. Aside from a dip in the years prior to the beginning of the recession, the number of unemployed has remained fairly constant between 35,000 and 40,000. Despite this, the number of temporary foreign workers has grown steadily, and more than 2,800 foreign workers were recorded as present in the province on December 1, 2012. While the focus of the debate about immigration and the labour shortage usually focuses on permanent admissions, the growth of the Temporary Foreign Worker Program makes it imperative that it be considered in any analysis of the usefulness of immigration as a solution for the country’s labour needs.

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Finally, the government must find ways of inducing Canadian workers — through tax holidays or other measures — to move from high-unemployment regions to the provinces where the jobs are.

Full article @

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