Foreign workers a boon for employers, for Canada not so much

ECONOMICS REPORTER — The Globe and Mail

Seasonal workers pick daffodils on a field near Victoria, B.C. (DON DENTON for The Globe and Mail)

Canada’s pool of unemployed labour is growing deeper – eroding the underpinning of the federal government’s expanded temporary foreign worker program.

There are now 6.5 unemployed people for every job opening in the country, compared with 6.1 a year earlier, Statistics Canada data showed this week, with the number of vacant jobs falling to the lowest level since record-keeping began in March, 2011.

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Nearly 1.4 million Canadians are jobless, a slight rise from a year ago. Jobless rates for young people, recent immigrants and women are all higher than a year ago.

The Bank of Canada said this week it sees a “persistence of slack, although to varying degrees” in the labour market, with its quarterly business survey showing labour shortages below historical averages. The average spell of unemployment and the portion of part-time workers who would rather be full time are still elevated, it noted, while wage growth has cooled.

The 2013 federal budget said Canada continues to face “major labour and skill shortages in many regions.” Skills shortages do seem to be rampant, but evidence of labour shortages is largely anecdotal and regional.

Addressing perceived labour shortages has been a key reason why Canada’s temporary foreign worker program has doubled in the past six years, surpassing 330,000 people. But what has been a boon to some employers in a slow-growth economy may be less beneficial for the country as a whole.

The expansion to allow more temp workers to do lower-skilled, entry-level jobs harms the very people trying to get a toehold in the labour market, such as recent immigrants, new grads, the unemployed and aboriginals – groups who may have otherwise been wooed by employers in a tighter labour market. Wages are dampened, which makes it less likely Canadian workers will want to move from high-jobless areas to lower-unemployment regions. Temp foreign workers themselves vulnerable to abuse and exploitation.

Revelations on the growth of the program offer new insights into multiple threads in the economy: why wage growth has stayed muted even in high-demand occupations and regions, why unemployment rates for some groups, such as youth and immigrants, remain stubbornly high, and why more people haven’t moved to other provinces for work. For some job seekers, it may answer why some haven’t been getting responses to their applications.

While economists and researchers agree the program has sparked a range of negative side effects, they say it’s tough to quantify the precise effect on the labour market, and on the economy. But in the long run, it leaves the country with workers who are less trained, with less experience and fewer opportunities.

It’s not just academics and economists who are concerned. In a memo to 55,000 engineers across the province this week, the Ontario Society of Professional Engineers said, though the federal government’s temporary foreign workers program has value in bringing people with specific, hard-to-find skills, it sees it “as contributing to downward pressure on wages as well as steering engineering employers away from training new graduates or retraining engineers.”

The temporary foreign workers program has expanded in recent years from targeted areas – such as agricultural labourers, live-in caregivers and some highly skilled workers in niche areas – to a range of lower-skilled areas. Food counter attendants and kitchen helpers were the top occupation groups accepted last year, along with cooks, truck drivers and greenhouse workers.

“For sure it’s depressed wage growth – with over 300,000 [foreign temporary] workers, I would use the word significantly … and it’s definitely discouraged labour mobility,” said Don Drummond, a fellow at Queen’s University and former chief economist at Toronto-Dominion Bank.

A lack of detailed data on where the program is being used, and localized information on job openings in Canada, render it tough to evaluate the extent of the program’s impact and whether the chief reason for its existence – claims of labour shortages – are even true.

“We’re shooting in the dark,” says Mr. Drummond, whose 2009 advisory panel called for better and more accessible information on the labour market and where the jobs are. Most of its recommendations were never implemented. “There may be some isolated examples where there just isn’t enough labour, but in most of these cases I think we’re just not connecting the people inside Canada to where the job opportunities are.”

The program’s expansion has had an “adverse” effect on Canada’s labour market and kept regional differences in unemployment rates higher than they would have otherwise been, concludes a paper released in January by two Simon Fraser economists. Its assessment shows the program suppressed inter-regional labour mobility from places with high joblessness to areas of low unemployment.

Such programs can work well if they’re targeted to specific occupations with precise durations, said Dominique Gross, professor of public policy and former IMF economist who co-authored the paper with Nicolas Schmitt. But the looser design of the existing program “is definitely not working. It corresponds to bad economics.”

Canada is an outlier among industrialized countries, she adds, in expanding the use of TFWs to low-skilled occupations – at a time when the jobless rate for lower-skilled workers is about 10 per cent – while having no cap on the program. This also creates long-term troubles, she added, citing the examples of the United States and Germany, where prolonged used of such programs caused workers to stay on illegally once their contracts expired, spawning a bigger underground economy.

But scaling back the program will hobble some businesses. Tim Free, who runs a landscaping business in Calgary, says he can’t find Canadians willing to work at $16-an-hour jobs because of the hard work and long hours. He’s tried raising wages – to $20 an hour – and introducing perks like free lunches, but recruiting and retaining workers was still tough. “No one wants to be a labourer any more.”

He’s bringing four seasonal workers from Mexico this spring. Without that ability, he says, he would have to scale back his business, says the owner of Twisted Rock Terrascape & Design Inc. “You can only grow a business if you can obtain workers willing to grow with it.”

Low-skilled workers in Canada have directly affected by the program’s expansion. The jobless rate among less-skilled workers in Canada rose to 10.5 per cent last year from 8.3 per cent in 2007. Almost a third of that increase stems from employers substituting temp foreign workers for less skilled people in the country, calculates economist Robert Fairholm, based on assumptions on the growing use of less-skilled TFWs.

The program has also exacerbated joblessness in regions of the country with higher-than-average unemployment, says Erin Weir, economist at the United Steelworkers, noting that much of the growth in the TFWs in recent years has been in regions with higher unemployment: Ontario (Toronto in particular), Quebec and the Atlantic region.

“That speaks to the fact that it’s not being focused on areas of perceived labour shortages – employers are using it as a source of cheap labour all across the country.”

The number of TFWs is now nearly equivalent to the entire work force of New Brunswick, with a growing number coming to fill low-skill services positions. “It’s a big concern if temporary foreign workers are being used to drive down standards at the lower end of labour market. That hurts the most vulnerable parts of our society and worsens inequality.”

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