Wednesday, October 23, 2013

Skills and labour shortage: Sky not falling, carry on

The TD Bank has released a new analysis of the Canadian labour market that pours some cold water on claims that a massive labour shortage is looming. For whatever reason, I can’t find the full report (I’ll keep looking—it may be embargoed), but a six-page summary is available here.

EDIT: Here is the full report.

The most interesting part of the summary is this bit from page 4:
It is the case that occupations widely thought to be in shortage have recorded considerably lower unemployment rates than their counterparts in the surplus camp. Still, vacancy rates outside some pockets (e.g., trades) are not significantly higher than the rest and have not accelerated over the past few years. And strikingly, similar wage increases are noted in sectors in loose and tight markets.  
Given the regional variations in labour market conditions, we tested occupational mismatch at the provincial level. Our findings corroborate the view that regional mismatch occurs, with vacancy rates rising more significantly in the Prairies, particularly in those occupations perceived to be in shortage. In addition, we discovered that employers in Alberta and Saskatchewan were also having difficulties filling workers in occupations widely believed to be in surplus, which points to the knock-on effects to the broad economy from strong resource development.  
The story on the wage data remains curious, as wage gains out west have not increased to the extent that one might have thought given the signs of tightness. We cite in the report a number of factors that could be at play in holding back wages, including competitiveness pressures and the preference of employers to use non-wage channels to address hard-to-fill vacancies.
Basically, there is tightness in the labour market in some occupations and some regions, but not enough to trigger significant wage increases. Further, TD questions projections that there will be a large shortage of labour in the future.

This report suggests a number of things. First, the sky is not falling regarding labour shortages or a skills gap. There may be localized or occupational tightness, but this does not imperil the economy. This is useful to know as the (economic) sky falling is often used to justify public policy change.

Second, we should be cautious about industry and industry lobby groups warnings around shortages as employers benefit from government policies that expand the labour pool (it typically cheapens labour). This is especially the case when employers are not utilizing the levers they can (e.g., improving wages and working conditions) to draw more workers into the labour force. In effect, we may be seeing relative labour shortages (no more workers willing to work for available wages and working conditions) rather than absolute shortages (no more workers no matter the compensation or conditions). 

Third, federal programming changes (e.g., raising pension age, linking EI to labour mobility, the Canada Jobs Grant) may not rest on a firm footing. Rather, they may well be sops to industry to loosen the labour market and thus reduce wage pressure.

-- Bob Barnetson

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