No one takes orders at the Burger King in the rest stop off of Ontario’s Highway 401 near Port Hope. Instead, there’s a large touch screen that customers use to select and pay for their Whoppers and fries.
That is just one small example of how companies are choosing to adapt to falling unemployment, rather than griping about a labour shortage that is in large part a mirage. Unfortunately, such innovation seems to be the exception, with many business groups preferring to press for increases in cheap labour, in the form of temporary foreign workers.
Basic economics says that the price of something should rise if it is in short supply. But wages – in the middle of what business groups tout as an unprecedented labour shortage – have not even kept pace with inflation, and fretting over a labour shortage has mounted. Average hourly earnings have fallen since January, 2020, once inflation is taken into account. Translation: Businesses may be moaning about a labour shortage, but they aren’t willing to put their money where their moans are.
Another clue that claims of a widespread labour shortages aren’t quite what they seem came in a Statistics Canada report last week that looked at job vacancies, which were 2½ times greater in 2022 than in 2016.
There were stark differences in the rates, depending on a job’s education requirement. For positions requiring at least a bachelor’s degree, there was no general labour shortage.
But there were a large number of vacancies for jobs that only required a high-school diploma, or less. For those lower-skilled jobs, there were many more vacancies than unemployed workers. Even if all those workers were instantly hired, there still would have been 131,000 vacancies in the fourth quarter of last year, for instance.
Despite that apparent shortage, wages are not rising in response. That could be explained in part by a lack of pricing power by some employers. They may not be able to increase their own prices enough to absorb the cost of higher wages.
The heart of the answer, however, is the rise in the number of temporary foreign workers who are willing to work for cut-rate wages and are not as able to shift jobs nearly as easily as Canadian residents. The number of such workers has exploded since the pandemic, jumping to 120,000 at the end of 2022 from 73,360 at the end of 2019.
Economist Jim Stanford thinks there could be deeper structural issues at play, including the ubiquitous use of job-hiring sites. It doesn’t cost much to post a job electronically, and automatic sorting reduces the administrative burden dramatically. Some of those vacancies may be placeholders.
Then there is the less-than-pleasant nature of some low-skilled workplaces, where low pay and high turnover go hand in hand. Mr. Stanford says some employers likely find it more advantageous to deal with high turnover than pay their staff enough to dissuade them from quitting.
Add those two factors together and that glut of job vacancies may in fact be illusory listings that anticipate gaps that will emerge from the next wave of quitters, rather than a sign of a genuine labour shortage.
Still, there’s no doubt some employers are struggling to find workers – and are pressing the federal government to boost the number of temporary foreign workers. Ottawa has bought into that narrative wholeheartedly: The immigration department referred to chronic labour shortages as the justification for revised rules rolled out on Wednesday.
That narrative obscures an uncomfortable reality in which the rapid increase in temporary foreign workers is little more than a subsidy that allows firms to avoid paying higher wages – and, just as bad, reduces the pressure to invest and innovate to adapt to the needs of today’s labour market. In turn, that dampens productivity growth.
Dramatic decreases in the ranks of temporary foreign workers would be disruptive, but Ottawa should start ratcheting down annual intakes. That transition would be smoother if the government took a page out of climate-change policy and allowed companies to trade permits for hiring temporary workers. Companies that were able to innovate and reduce their need for low-skilled labour would be able to sell their quotas, while those who did not would have to bear a cost for using temporary foreign workers.
The alternative is for Ottawa to continue with a policy that blunts wage growth, exploits foreign workers and, for good measure, depresses innovation and productivity.