Skills and Productivity in Canada – Skills shortages explain 7 per cent of the gap between U.S. and Canadian productivity

Skills shortages hamper Canada’s productivity growth. If there had been no skills shortages over the past 20 years, Canada’s GDP would be 1.8 per cent, or $49 billion, larger.

Key findings

• Skills shortages hamper productivity growth. We estimate Canada’s GDP would be up to 1.8 per cent, or $49 billion, larger today if there had been no skills shortages over the past 20 years.

• Skills shortages explain around 7 per cent of the productivity gaps that opened in the two most recent periods in which Canadian productivity growth lagged that of the United States—between 2003 and 2012 and again from 2018.

• When skills shortages affect a group of related industries, the effect on aggregate productivity can be large. We identify three distinct groupings of industries within the Canadian economy based on the skill requirements of firms in each sector:

– goods-producing industries
– knowledge-based services industries
– technical and manual services industries.

• Shortages in one sector can impact other sectors in the same grouping because they share similar skill profiles.

• Skills shortages vary over time. Currently, Canada is facing a shortage in the construction sector which is also affecting the utilities and mining industries. These sectors require technical skills, such as setting up, repairing, and operating machinery and equipment and designing structures or engineering systems.

• Between 2018 and 2021 Canada experienced widespread and severe skills shortages across the knowledge-based services industries. These sectors require high levels of foundational, analytical, and interpersonal skills.

• Our measure of skills shortages, which is based on readily available labour market information, can help policy-makers identify sectors facing skills shortages, determine the duration and breadth of a shortage, and calibrate any policy response to match the severity or impact of that shortage. This information can help prioritize both near-term and longer-term policy responses to alleviate skills shortages and boost productivity.

Chosen excerpts by Job Market Monitor. Read the whole story @  Skills and Productivity: Which Skills Shortages Are Impacting Canadian Productivity?—August 2024 – The Conference Board of Canada