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A Labour Market Shortage of 1 Million by 2020? Where We Stand Today

November 11, 2013
Pedro Antunes

Pedro Antunes
Director
Forecasting and Analysis

More than a decade ago, The Conference Board of Canada published in its then-annual flagship report Performance and Potential 2000–01 a summary of our research delving into the coming challenges of labour market pressures. The research relied on demographic projections and a detailed analysis of labour force participation rates by age and gender cohort to show that a problem was looming.

More precisely, we said “the steep decline in labour force growth is at the root of the labour supply crisis that will develop in Canada around 2010.” We also said that the labour shortfall could reach nearly a million workers by 2020.1

This “million worker shortfall” has often been quoted by researchers and the media, but it has also been misunderstood. In that same report, we explained that a worker shortfall is “logically impossible” and that something else has to give. Essentially, the economy has to operate with the workers that are available—by substituting labour for capital and reducing production. The exercise was simply to give weight to a problem we knew was coming—that of impending pressures on labour markets.

So how have things evolved since 2000?

In fact, labour market pressures emerged faster than we had first expected—well ahead of our original 2010 estimate. From 2003 to 2007, a booming resource sector led to stronger-than-expected employment gains that pushed up labour force participation and immigration, and significantly lowered unemployment. At the beginning of 2008, labour market pressures—or “labour shortages”—were putting significant strain on employers. By early 2008, the national unemployment rate was down below 6 per cent, levels not seen since the late 1960s.2

Labour markets were tightening in all regions, but were at rock-bottom levels out West. At 3.4 per cent, Alberta’s unemployment rate had employers bidding up wages and benefits, creating a highly inflationary situation, with many jobs going unfilled.

But in late 2008, the financial market crisis and ensuing global recession quickly deflated commodity prices and economic activity across the country. From peak to trough (or, more specifically, over the 10 months from October 2008 to July 2009), the Canadian economy shed 430,000 jobs—a 2.5 per cent drop. Job losses resulted in slackness in Canada’s labour market. Moreover, the effects of the global recession have been deep and long-lasting.

Charting showing wage pressures resurfacing in some regions of Canada

While Canada’s economic performance has been solid in comparison with that of most other developed economies, we’re not yet at full capacity and have not reabsorbed all available workers. But even as the ranks of the unemployed have grown, the supply of workers in some occupations and skilled trades remains slim. Today, in Alberta and Saskatchewan, the unemployment rate has fallen to just 4.3 per cent, and wage gains are once again strongly outpacing inflation. (See chart.)

At an aggregate level, however, there is no crisis—at least not right now. After all, the national unemployment rate is at 7 per cent, about 1 per cent above full employment, and there are pockets of excess labour in some regions and across some occupations and age cohorts. For example, youth employment is down by about 200,000 from pre-recession levels—and the youth unemployment rate remains stuck at around 14 per cent. Moreover, wage pressures across a number of occupations, especially in Ontario, remain muted.

Does the situation today suggest we should no longer worry about the availability of workers going forward? Absolutely not! We need to keep looking ahead. The retirement of the baby-boom cohort is just starting. Of the nearly 10 million baby boomers, 30 per cent are late boomers aged between 48 and 52. And while many Canadians are working longer, this will only delay, but not prevent, the huge exodus of workers that is just beginning.

During the decade before the recession, employment rose by 2 per cent a year in Canada. In the years to come, the pace will slow drastically. By the end of this decade, growth in employment will slow to well under 1 per cent a year and to just 0.6 per cent annually by 2025. As the remaining pockets of underused labour are tapped, the pace of hiring will have to slow drastically.

In fact, because of slow growth in the number of net new workers, employers will soon have to reduce their pace of hiring to roughly a third of what that they were accustomed to before the recession—a fundamental change in the way we do business. Hopefully, we will be better prepared than we were in 2007.

1  The Conference Board of Canada, “Wanted: Skilled Workers to Fill the Upcoming Labour Shortage,” Performance and Potential 2000–2001 (Ottawa: The Conference Board of Canada, 2000).

2  By our estimates, the unemployment rate in Canada was very close to its absolute minimum in late 2007 and early 2008. The minimum unemployment rate—or the “natural rate”—is not observable but is estimated and represents the situation in which the economy is at full employment.

 


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