Labour Crunch: Better Ways to Make Use of Human Capital

October 9, 2007

The following article appears in the October 2007 issue of Canadian Government Executive. The writer, Ross Laver, is Vice President, Policy and Communications, with the Canadian Council of Chief Executives (CCCE).

By Ross Laver

When Pat Collins left Ottawa in September of 2005, it was the start of what he hoped would be the trip of a lifetime. Boarding his classic 33-foot sloop near Montreal, he sailed east to the Gulf of St. Lawrence, then south to Nova Scotia. An experienced diesel mechanic, Collins intended to spend the winter in Halifax upgrading his boat before heading off to explore the Caribbean – the next stop on an extended bluewater cruise.

That, at any rate, that was the plan. But two years after setting out from Ottawa, Collins is still in Canada. His voyage aboard “Artful Dodger,” a 1974 Morgan 33, has fallen victim – at least temporarily – to Canada’s growing need for skilled labour.

No sooner had Collins arrived in Halifax than he was offered a job for significantly more than he had been earning in Ottawa. “The fellow who hired me was having a hard time finding a diesel mechanic because all the local guys are out West making two or three times what they used to make here,” he explains. Collins spent close to a year in Halifax, then sailed his boat to St. John’s, Nfld., where he still works for the same company. He tentatively plans to resume his voyage next spring – assuming he can convince his employer to let him leave. Adds Collins: “The way things are going there’s no question that the shortage of people in my trade is going to get worse.”

Indeed, labour shortages are becoming increasingly common in many sectors and communities across Canada. The booming oil and gas industry in Western Canada is the most obvious example: by some estimates Alberta faces a shortfall of up to 100,000 workers by 2016, a problem that if unsolved will severely limit opportunities for growth. But many other industries and regions are being affected, too.

According to the Canadian Federation of Independent Business, the increasing scarcity of skilled labour is one of the fastest-growing concerns of small- and medium-sized enterprises. With the national unemployment rate hovering near 30-year lows, employers must work harder than ever to recruit and retain staff. Case in point: the Tim Horton’s chain of coffee shops now spends a significant share of its TV advertising budget on commercials that boast of its employee health benefits, scholarship program and flexible work hours.

Meanwhile, in a recent survey of Canadian human resource executives conducted by Deloitte, 55% of respondents indicated that they had significant challenges hiring for key technical or skilled jobs, and 60% reported significant challenges in retaining critical talent.

Private-sector employers are not alone in feeling the squeeze. In some ways, the public sector is even more vulnerable to the labour crunch given the more favourable pension benefits and early retirement plans offered to public servants. Currently, almost two-thirds of public-sector workers leave their jobs before age 60, nearly twice the rate of the private sector. And unlike many of their private-sector counterparts, public-sector employers don’t have the ability to relocate offices or factories to wherever in the world the right people can be found.

The contrast between Canada’s current labour market and the situation two decades ago could not be more stark. “With the unemployment rate at 12% in the mid-1980s, politicians struggled to craft policies that created jobs for thousands of unemployed Canadians,” said a June 2007 study by Action Canada, a Vancouver-based national young leaders organization. “Today, that time seems like a distant memory. In 20 years, we have moved from an era of more workers than work to an era of more work than workers.”

The reasons for this sea change are not difficult to understand. Canada is currently in its 16th consecutive year of economic expansion, fueled by strong exports, low interest rates and healthy public-sector balance sheets. Meanwhile, low fertility rates and longer life expectancies are contributing both to the aging of Canada’s population and to a slowdown in labour-force growth. Over the past 25 years, the national labour force increased by an average of about 226,000 people per year. This decade, it will grow by only 123,000 per year, and by 2010 growth will have dropped to 42,000 per year, according to Linda Duxbury of Carleton University’s Sprott School of Business.

The implications for Canada’s future economic performance could be profound. In a 2006 study titled “A Perfect Storm: Sustaining Canada’s Economy During Our Next Demographic Transformation,” economists Andrew Ramlo and Ryan Berlin calculated that the theoretical demand for labour in Canada will reach 35.2 million people by 2055, assuming average real annual GDP growth over the period of 1.6% (low by historic standards). Yet in that same year, the actual size of the labour force is projected to be 22.8 million people, even after taking into account record levels of immigration and labour-force participation.

“The result is a situation where employment (the demand for labour) would exceed the labour force (the demand for labour) by 12.4 million workers,” Ramlo and Berlin write. One way to close the gap, they note, would be for Canadians to accept lower rates of economic growth, but that approach would not address the second major consequence of an aging population: the escalating demand for healthcare spending. “It is the doubling of the older segments of the Canadian population over the next half century that will drive social and economic changes that will ripple throughout Canadian society over the coming decades,” the study concludes.

For policymakers, the challenges are clear. To ensure Canada’s prosperity and maintain our quality of life, we must make the most of our current and future workforce while at the same time becoming more successful at attracting and integrating skilled immigrants. We cannot afford to waste valuable human resources, and we cannot sit back and wait for people with the right skills to come to us.

Key issues include:

Education: Although Canada has a strong record in ensuring access to basic education for all, too many children fail to complete high school and too many high school graduates lack the skills and motivation necessary for a stable and satisfying career. While provincial governments have jurisdiction over schools, we must work as a country to enhance learning standards and accountability, and to help schools, colleges and universities make the most effective use of public spending in continuing to improve educational outcomes.

Training and lifelong learning: Canada needs to develop a framework for lifelong learning that cuts across the public and private sectors. For the most part, governments and large companies understand the need to invest in their employees both to improve productivity and to attract and retain talented people. But while large employers can engage in training cost-efficiently, smaller businesses and the self-employed face greater obstacles.

Labour mobility: Interprovincial labour mobility is higher than ever before in Canadian history, a result in part of the current oil and gas boom. Yet there are still many professions and trades in which significant barriers limit the ability of people to relocate in search of better opportunities. As the June 2007 Action Canada study put it, “any barriers at all are inefficient for the economy and unreasonable for individuals.”

Aboriginal development: Aboriginal Canadians represent Canada’s youngest and fastest-growing human resource, yet the unemployment rate among aboriginals remains three times the national average. Governments, aboriginal organizations, the private sector and education institutions all have important roles to play in developing this resource and increasing aboriginal labour-force participation.

Immigration and integration: The challenges of a tightening labour market are not confined to Canada. As the competition for talent heats up globally, we must ensure that Canada remains a destination of choice for immigrants with skills, energy and ambition. Unfortunately, the evidence suggests that it is taking immigrants longer to find work related to their qualifications and to catch up to the incomes of Canadian-born workers. We must do a better job not only of recruiting skilled immigrants, but of assessing and recognizing their credentials and ensuring their full and equal participation in the labour force.

Clearly, there is no simple solution to Canada’s increasing need for skilled labour. Given the dimensions of the challenge, Canada needs to pursue a range of different and complementary labour-market strategies. The spectre of general labour shortages and declining rates of economic growth is both serious and alarming. Yet by encouraging us to make better use of our available human capital, tightening labour markets can ultimately provide the spur that ensures a stronger, more dynamic economy for all Canadians.