Canada’s robust post-COVID [1] economic environment has led to a variety of challenges. For consumers, inflation and rising interest rates are top of mind. But for businesses, labour shortages are the primary challenge keeping CEOs up at night.
It is important to note that Canada’s labour shortage problem isn’t exclusively a post-COVID consequence. On the supply side, Canada’s labour force growth rate has been trending downward since 2000—driven by the large baby-boomer cohort heading to retirement. And while the COVID pandemic temporarily shelved the labour shortage problem, exchanging it for an economic shutdown and widespread unemployment, the labour shortages are now back and worse than ever.
The unemployment-to-job vacancy ratio (the number of people looking for work per available job) is at a historic low making it difficult for employers to fill vacant positions. A low ratio indicates a tight labour market where vacant jobs are plentiful, and available workers are scarce. Canada’s current unemployment-to-job vacancy ratio is 1.4 (Q1 2022), down from 4.4 in 2016 (Q1), when labour shortages were already an issue. Alberta’s ratio is slightly better than the Canadian average at 2.0 (Q1 2022).
In this Quick Read, we explore why labour shortages are a challenge and how older Canadians might be the answer to our problems.
[1] Indicating post widespread public health measures.
Quantifying the Problem
Labour shortages are plaguing businesses of every size, in every industry, in every province. We know this through a variety of firm survey data. For example, the Canadian Federation of Independent Business finds that 50% of firms report that a shortage of skilled labour is limiting sales or production increases. And 39% of firms find that a shortage of unskilled or semi-skilled labour constrains output increases. The Bank of Canada’s Business Outlook Survey finds that 42% of firms report labour shortages, and many anticipate that this will limit sales growth. And BCA’s Business Expectations Survey finds that 78% of Alberta’s businesses face labour shortages that restrict their ability to meet demand. This is up from 52% of firms in July 2021 and 21% in October 2020.
Labour market data from Statistics Canada confirms the crunch businesses are feeling. In Canada, as of April 2022, there are over one million (1,001,135) jobs looking for people—a record high and a 44% increase over April 2021. In Alberta, that number of vacant jobs is over 100,000 (112,860), an 84% increase over April 2021, representing the largest increase across all provinces. Alberta’s job vacancy rate (the number of unfilled positions compared to the total number of positions—both filled and unfilled) however, is slightly lower than the Canadian average of 5.8%.
Calculating the Consequences
Labour shortages harm businesses in various ways, including unfilled orders, diminished competitiveness, and deteriorating product or service quality. Ultimately, a lack of workers can slow a company’s growth.
If we zoom out from individual businesses, we see that labour shortages present enormous costs for the Canadian economy. A Scotiabank report estimated that Canada’s GDP would increase by $100 billion, or 5%, if we could fill the one million job vacancies currently available. Relatedly, the Conference Board of Canada calculated the cost of job vacancies owing to missing skillsets at $25 billion in 2020.
Determining the Cause
While pandemic-related factors such as worker absences (illness, childcare responsibilities), slowed immigration, and the effect of government income supports did contribute to the labour shortage we see today, they aren’t the primary contributor. Rather, as mentioned previously, Canada’s aging population is the main driver.
As with most developed nations, Canada’s population is aging because (1) life expectancy continues to climb and (2) the large baby boomer generation is reaching retirement age, and the following generations are smaller. Between 2011 and 2021, the share of Canadians aged 65 and up grew from 14.4% to 18.5%. The last of the baby boomers will reach 65 in 2031.
Population aging will continue to put downward pressure on labour force participation and labour force growth.
Proposing a Solution
If older people are the “problem,” perhaps they can be part of the solution.
As stated in the Scotiabank report cited earlier, older Canadians are an underutilized and overlooked source of labour. The labour force participation rate drops precipitously once Canadians reach their mid-50s and drops even more steeply for those in their 60s.
As medical advancements make for healthier aging, there is an opportunity to re-engage older Canadians in the workforce to slow the decline in labour force participation and alleviate the labour pressures faced by businesses. And it doesn’t mean that older Canadians need to work full-time; part-time employment, or job-share arrangements would also help ease those pressures.
While personal circumstances influence the decision to retire, that decision is also affected by the policy environment. Government has an array of tools it can employ to incentivize older Canadians to continue working (e.g., tax credits) or disincentivize early retirement (increase the age for Old Age Security).
Emma Dizon, Policy Analyst