A recent report highlighted evidence of a growing mismatch in the Canadian job market. Many people remain without jobs, even as many employers complain that they cannot fill available job vacancies.
With the national unemployment rate at 7.4 per cent – well above the pre-recession level of about 6 per cent – and with 5.2 unemployed workers for every available job opening reported by employers, it would seem that Canada is not suffering generalized labour shortages.
However, as highlighted in a recent CIBC report, there are a significant number of occupations in which unemployment is almost non-existent and wages are rising rapidly.
It is enormously important that we obtain timely and accurate information on the extent of labour and skills shortages. Skills shortages which reduce our economic growth potential can be addressed and resolved through appropriate training and labour market policies.
If, for example, we know with confidence that there is a shortage of welders in Saskatchewan, unemployed welders in Atlantic Canada can be reliably advised where to move, training programs run by educational institutions and unions can be expanded, high school graduates and unemployed workers can be advised to study welding if they want to find well-paid work, and immigration of welders could be fast-tracked.
However, if we and, more particularly, the Bank of Canada over-estimate the general level of demand for labour by employers and don't believe that most unemployment is not the result of mismatch between the skills of the unemployed and the skills demanded by employers, we run the very real risk of choking off a weak recovery at an unnecessarily high level of unemployment.
One obstacle to gaining accurate information is that we lack a firmly grounded definition of skills shortages. Employers have a very strong tendency to complain that they cannot find the workers they need at the wages that they want to pay, whereas most economists want to see evidence of genuine shortages in the form of a low unemployment rate and wages rising at well above the average rate.
The CIBC report shows that skills shortages exist almost entirely in highly skilled professional occupations, and a number of the skilled trades would be added to his list if the same analysis was conducted at the provincial level. The most recent long-term outlook for the Canadian job market issued by the Department of Human Resources and Skills Development similarly found that, based on unemployment rates and wage trends, shortages are likely to be confined to a modest subset of skilled occupations.
There is a significant discrepancy between these studies and labour market policy. Even as cyclical unemployment due to a shortage of demand for workers remains very high in most occupations, the federal government has been increasing the number of low skilled temporary foreign workers. The evidence base for approving applications for such workers is not transparent, and relies heavily on employer reports that they have been unable to recruit workers at prevailing wages.
The federal government is also implementing new rules which will require many lower skilled Employment Insurance recipients to accept significant wage cuts after a very brief job search, or risk losing their benefits.
In both cases, the assumption seems to be that there is a shortage of labour, not a shortage of highly-skilled workers in a subset of occupations and regions.
The many obstacles to gaining timely and accurate labour market information were outlined by economist Don Drummond in his report to the Department of Human Resources and Skills Development and provincial governments in 2009. The report also underlined the very significant cost of not acquiring and effectively communicating labour market information.
Yet one of the major outcomes of that report, a planned Statistics Canada Workplace Survey which would have obtained very detailed information on job vacancies, has been cancelled for 2012, an apparent victim of spending cuts.
That leaves us with a very limited survey of job vacancies which provides no information at all on vacancies by occupation, nor on what measures employers have taken to try to fill reported vacancies.
Unnecessarily high unemployment can, in turn, set the stage for intensified skills shortages down the road. That is because the long-term unemployed lose contact with the job market, young people fail to gain valuable on the job experience, and employers feel little pressure to upgrade the skills of their workers since replacements are easy to find. And, of course, the lack of a tight job market will mean that wages and living standards of those who are employed will tend to stagnate.
This leaves one to wonder if the federal government prefers labour market policy to be guided by employer opinion, or by accurate labour market information.
Andrew Jackson is Senior Policy Adviser to the Broadbent Institute and the Packer Professor of Social Justice at York University