Achievement of a decent level of growth in Canadian per-capita incomes in the years ahead depends crucially on an increase in the number of hours worked relative to the size of our population—and even more importantly on the quality of output from each of those hours.
Like a steady drip, Canada’s labour force participation rate has been falling, virtually unnoticed, by 0.2% a year for the better part of a decade. The positive effects of immigration and improvements to participation by most age groups (but especially 60+ workers) has only partially offset the effects of an aging population. The inescapable objective of policy at such a time is to ensure not only that those who want to participate can find a job, but most importantly that they have access to the tools (equipment) to be fully productive and are provided the opportunity (education and training) to gain the knowledge and skills to produce the highest value of output.
From the perspective of maintaining labour supply, raising the participation of two key groups stands out: older workers (those between ages 60 and 74) and workers with caring responsibilities (for children, the elderly, the disabled). They, therefore, should be the prime focus of policy.
For older workers, the key is to remove the disincentives contained in our OAS, CPP and tax system in the form of the very high effective rates of taxation on labour income, and to provide opportunities for transition to other types of employment, especially in caring occupations. For those with children, access to childcare is crucial. For those with other family caring responsibilities, additional leave has been demonstrated to be an essential element in fostering participation.
One of the simplest lessons from the COVID experience is how working from home, when virtual work is feasible, can in many instances increase productivity and reduce unproductive commuting time. While no one size will fit all, measures to facilitate virtual work, ie. choice, can effectively expand the supply of productive labour hours. Along with reforms to increase participation of older workers, migrants, and those with caregiving responsibilities, virtual work can help offset the natural decline in the growth of labour hours due to population aging.
Even more important than rebuilding the quantity of available labour is ensuring the skill mix of workers adjusts rapidly to meet the evolving requirements of a changing economy. This involves an increased focus in our education system to expand the base of STEM knowledge as well as the human skills that facilitate adaptation and learning throughout a working lifetime. It entails focus by employers and individual workers on continuing acquisition of new and upgraded skills. It requires reconstructing our employment insurance system to support and encourage skill acquisition during and before periods of unemployment. And, finally, it involves a focus on providing support for older workers to transition to less physically demanding occupations and to acquire the skills necessary to meet the increased demands for services for our aging population. By focusing on these critical areas, government policy can reduce unemployment though better matching of skills, improve the quality of labour hours supplied and help raise productivity. The payoff: more participation by a better prepared and more inclusive labour market will raise wages, reduce income inequalities and lead to a more globally competitive Canadian economy.
Naturally enough in an era of technological change, even with investment in these policies to improve the quantity, quality, and flexibility of labour, one can expect shocks in the job market will continue to occur, resulting in unforeseen periods of unemployment.
COVID has forcefully demonstrated that our current system of unemployment insurance is ill-adapted to provide temporary support to the growing proportion of workers who are self-employed or who do not enjoy a long-term continuing permanent relationship with a single employer. CERB was invented out of thin air to address this shortcoming, but is structurally ill-suited as a permanent feature to support workers during economic downturns. It recreates a version of the so-called welfare wall it took decades to dismantle.
A key challenge for the federal government in the post-COVID period is to rebuild the EI system to include self-employed and contingent workers who can then pay premiums and gain access to the benefit and training provisions of the system. We should retain the underlying philosophy of our flexible North American system, which recognizes that labour market churn involving periods of unemployment facilitates adaptation, growth, and improved productivity as opposed to European systems of layoff prevention (prohibition of dismissals combined with wage subsidies), which ultimately impose a serious adverse toll on hiring—especially by small and medium enterprises.
Chosen excerpts by Job Market Monitor. Read the whole story @ Two Mountains To Climb: Canada’s Twin Deficits and How to Scale Them – Public Policy Forum