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Why Canada should welcome labour shortages


Employer groups such as the Canadian Chamber of Commerce and the Canadian Federation of Independent Business insist that their members need continued access to the Temporary Foreign Worker Program since Canada is experiencing an acute labour shortage, including a shortage of low-skilled workers.

That claim is highly dubious, and should be rejected by the federal government, which is now reviewing the program.

Yes, we have some shortages of highly skilled workers, especially in provinces with very low unemployment rates. These can be responded to by increasing training of under-employed Canadians, and by making the needed changes to our immigration program so that those recruited outside the country to meet our skill needs come here with a clear path to citizenship.

But there is no evidence that we have a general shortage of less skilled workers.

Statistics Canada reports that there are currently 6.5 unemployed Canadian workers for every reported job vacancy. Moreover, average hourly wages, up just 2.0 per cent year over year in March, are basically flat after inflation is taken into account.

But what if there actually was a labour shortage, and we were experiencing rising wages? Would that be a bad thing?

A key characteristic of the Canadian labour market is that we have a relatively high proportion of workers employed in low-wage jobs.

OECD data published in the annual Employment Outlook show that more than one in five (21.1 per cent) of Canadian workers and fully one in four U.S. workers are low-paid, defined as earning less than two-thirds of the median national hourly wage. This compares to an OECD average of 16.3 per cent.

In Canada, being low-paid by this definition means earning less than $13.60 per hour. This is barely enough to keep a single person, employed full-time for a full year, above the poverty line in a large urban area.

Over most of the past 30 years, real wages have barely increased for workers at and below the median wage level, mainly because so many workers have been unemployed or underemployed. Only in the years of relatively low unemployment between 2005 and the Great Recession did the median hourly wage start to rise at a modestly faster rate than inflation.

Any increase in real wages for low-paid workers should be welcomed in terms of fairness, and it would prompt positive responses in overall economic efficiency.

Employers could be expected to respond to any labour shortage and rising wages by investing in the skills of workers, or in labour-saving technology, or in some combination of the two in order to raise productivity.

That has certainly been the experience of some European countries like Denmark, which have a much smaller proportion of low-paid workers than does Canada.

For example, the meatpacking industry in Denmark is much more capital- and skills-intensive than the industry in Canada and the United States, and it has remained globally competitive despite relatively high wages.

To take another example, a significantly smaller share of the Danish workforce is employed in the retail trade and hospitality industries combined than is the case in Canada. (18.1 per cent compared to 23.5 per cent, according to the ILO Laborstats database.) This mainly reflects higher productivity gained through higher investment in skills and in equipment.

The Danish experience shows that it is possible to have a much smaller gap between lower-paid workers and the rest of the workforce, without this being a cause of lower overall living standards, high inflation or high unemployment.

Canada’s labour market policies, especially the Temporary Foreign Worker Program, seem to be intended to maintain significant slack in the job market despite slower labour force growth due to our changing demographics.

Instead, we should do all in our power to bring on low unemployment and rising real wages. These will work to raise productivity, to reduce inequality, and ultimately make us all better off.

This article originally appeared on the Globe & Mail's Economy Lab.

Photo: mbrochh. Used under a Creative Commons BY-SA 2.0 licence.