Where have all the workers gone? Don’t blame COVID, say economists

Canada is in the throes of a severe labor shortage, but economists say it’s not entirely the fault of the pandemic – it’s the inevitable culmination of a seismic demographic shift that has been brewing for decades.

“It’s the slowest train on the planet. It was predictable 60 to 65 years ago, and we haven’t done anything about it,” said Armine Yalnizyan, economist and Atkinson Fellow on the future workers. “We knew this transition was going to happen.”

The numbers behind all these signs of help needed are startling.

According to Statistics Canada, the unemployment-to-job vacancy ratio — a key measure comparing the number of Canadians looking for work to the number of jobs available — is currently at a historically low level in each province. In fact, the ratio is significantly lower now than it was before the COVID-19 pandemic began.

The reason isn’t that there are fewer jobs opening up – remember the signs of help needed? It’s because there are fewer workers available to fill them. And the reason for that, say economists, goes back to the post-war baby boom.

Construction workers prepare a form in downtown Toronto in May. According to Statistics Canada, their industry is one of the hardest hit by the current labor shortage. (Alex Lupul/CBC)

Not enough substitutes

As people 55 and older are steadily leaving the Canadian labor force — an exodus that some economists say has been accelerated by the pandemic as many older workers have opted for early retirement — there is simply no not enough young workers to replace them.

In fact, participation in the labor market among 25-54 year olds approached 88% in Mayup more than one percentage point from February 2020, before the pandemic took hold in Canada.

“That’s what happens when a baby boomer finally starts coming out from stage left and there aren’t enough people coming in from stage right,” Yalnizyan said. “We actually have a higher share of the working-age population working than ever before.”

Armine Yalnizyan is an economist and Atkinson Fellow on the future of workers. (Christopher Katsarov/The Atkinson Foundation)

This contradicts the theory that a kind of “big quitting” among working-age Canadians, many of whom have taken advantage of pandemic income support, is to blame for all these vacancies, according to Ian Lee, associate professor at the Sprott School of Enterprise.

“I just found it very suspicious because unless we’re independently wealthy…most of us have to have an income to survive,” Lee said. “It just didn’t make sense.”

“Your first suspicion as a labor economist is, well, are people out of the labor force anymore?” said Gordon Betcherman, professor emeritus at the University of Ottawa’s School of International Development and Global Studies. “But it’s not. It’s back to the levels we had before COVID.”

A labor market

Instead, economists say the data points to an emerging labor market where workers enjoy huge leverage over employers.

“There’s no denying that this trend that we find ourselves in where the balance between job seekers and job offers has definitely shifted,” Betcherman said.

According to Statistics Canada, this has resulted in virtually unprecedented labor shortages in almost every employment sector.

There simply aren’t enough people willing to take on low-paying, marginal jobs at best.– Armine Yalnizyan, economist

In particular, the construction and manufacturing sectors are struggling to recruit skilled workers, closely followed by accommodation and food services, which includes hotels, restaurants and bars.

“People are finding other places to work. There just aren’t enough people willing to do low-paying jobs that are marginal at best,” Yalnizyan noted.

“Workers have a lot more choices now,” Lee agreed. “If you have more choices and you don’t have to work in this industry, you will go to work in an industry where there is a better career path and where the wages are higher and the hours are more predictable. “

That could force employers in some industries to raise wages, Lee said.

“I’m not saying the demand for these jobs is going to go away. It’s not,” he said. “That suggests to me that we’re going to see some pretty serious wage inflation in these industries in the years to come.”

The restaurant industry is also struggling to attract new hires as many are opting for higher paying jobs with better working conditions. (Paige Parsons/CBC)

Salaries should increase

According to Yalnizyan, this new competitive environment means that employers in some sectors will have to raise wages if they hope to retain skilled workers.

“We are losing people who are trained as early childhood educators because we won’t pay them any more than we pay the groomers. Why would they stay if they can get a better job in another industry?”

This is confirmed by Statistics Canada data showing that the reservation wage – the minimum hourly rate at which job seekers are willing to accept a position – exceeds the wage currently offered in almost all sectors, while Canadian workers have always been willing to settle for less.

Economists believe there are other possible outcomes, including increased automation to fill the void left by labor shortages. Some industries could also bring in more temporary foreign workers to help fill gaps at the bottom of the labor market, which could dampen the gains made by domestic workers.

Ian Lee is an associate professor at the Sprott School of Business at Carleton University. (Radio Canada)

But Yalnizyan said the wage hike could help erase some of the inequality caused by a labor market that for years has paid some workers well and others poorly.

“If we really improve wages and working conditions, especially at the bottom, we could create the conditions to create a more resilient middle class that can actually afford to buy things. That’s what we’ve been missing it for quite a while now,” she said.

“The aging of the population can be our friend, not our enemy. But we need to treat it as something more than just a labor shortage for businesses. We must treat it as an opportunity to make every job a good job.