August 4, 2022

The solution to labour shortages isn’t just more people

A shortage of labour is a major pain point among businesses across Canada and Alberta. Consumers are in line, orders continue to flood in, but workers are hard to come by, limiting economic growth.

The solution seems obvious enough. We just need more people.

Many have estimated exactly how many more people are needed. There are a number of ways to do this but perhaps the most obvious is simply to look to the number of job openings. As of the latest data, there are about one million open positions across the nation, around 100,000 of which are located in Alberta. While there will and should always be some job openings—as new jobs become relevant and individuals part ways for greener pastures—this is about double the pre-COVID norm.

With some hard numbers in mind, this feels like a pretty basic algebra problem to solve: we just need to increase the number of people in the workforce so that the number of unfilled positions is around half of what it is now.   

To do this, we can appeal to individuals not currently in the workforce—from older workers who have retired to parents caring for young children to underrepresented demographic groups and those beyond our borders. As a result, policies that delay retirement, lower the cost of child care, remove barriers to participation, and expand or expedite immigration have all been appropriately raised as fitting the bill.  

But what if the labour shortage isn’t the problem of too-few-workers we think it is? These strategies are all well and good and worthy of consideration but, even taken together, focusing on more workers alone is incomplete.

That is because labour constraints should force us to think not only about the number of people and the number of hours worked, but the quality or value of those hours. What economists tend to refer to as “productivity.”

As an example, a similar sized automobile factory can produce three times the number of cars in a day it once could. This is not because it employs more people or because workers find themselves working longer hours—but quite the opposite. It is because the individuals employed have available to them more and better tools (robots, software) on which they are trained, increasing what workers can accomplish in a day while lowering costs to consumers.  

The same should be a major focus today. In fact, honing in on productivity not only means a more enduring solution to the challenge of labour shortages—an issue which is otherwise set to worsen as more and more Canadians reach retirement—but also comes with greater benefit to Canadians.

Money spent to enhance productivity tends to raise workers’ wages as they become more valuable to the business. In an article two years pre-dating COVID, The Economist even went so far as to say that, because of this dynamic, “scarcity of labour is probably something to celebrate”.

The question we should therefore be asking today is: what information, training, and technologies could help individuals to excel in their work? Similarly, what parts of the business process could be automated with AI to alleviate workers of tasks that are mundane, to focus human effort where it’s most beneficial?

The good news for Canadians is businesses are already asking themselves these questions and making capital investments to this end. As it becomes more difficult and costly to expand the workforce, even big-ticket investments—faster computers and smarter technologies—are starting to look more appealing and make sense longer-term. Done well, this will increase productivity and wages of individuals in the workforce while lessening the challenge of labour shortages.

But Canadian businesses have some catching up to do. Canada’s lagging productivity growth has been largely overlooked and blissfully ignored for many years. Now is the time for governments—both federally and provincially—to ask themselves a similar set of questions: what can the public sector do to support these efforts? As well as the equally important question of: what regulations, processes, and barriers to trade might be getting in the way?

If, after years of letting productivity fall to the wayside, labour shortages are the wakeup call needed to put as serious of thought into the policies that affect labour productivity as we do to the quantity of labour, labour shortages might be one of the best things to happen to Canada.

Alicia Planincic, Economist & Manager of Policy

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