New Realities in a Changing Workplace

September 28, 2009

We’re in a recession.  It’s a bad one, they say, worst one since the Great Depression.  The unemployment rate has been shooting up.  The political debate is all about stimulus – more money, faster, got to get people back to work.  It’s “jobs, jobs, jobs” all over again.

After all, the unemployment rate hit 8.7 percent in July, a huge jump from its lows below 6 percent barely a year ago.  And it may well get worse before it gets better.

But look back a bit.  In the last recession, unemployment peaked at 11.4 percent in 1993 and took almost five years to get down to 8.7 percent. In the recession before that, unemployment hit 12 percent in 1983, and again took more than four years to get down to where we are today.  And that’s nothing compared to the 19.3 percent rate Canada hit in 1933. In other times, today’s peak was more like normal.  The economic cycle is not dead, but there is a clear trend here.

So yes, we’re going through a recession.  A lot of people are out of work. But it’s not going to last.  Once through this cyclical downturn, the relentless aging of our population means that we will be facing a structural shortage of labour in very short order.

This has some fundamental implications for national economic policy as well as corporate strategy.  My colleagues will talk more about the latter, so I’m going to look at some of the implications for Canada as a whole.

The first is that what we face is a growing shortage of skills rather than simply of labour.  An economy with a shrinking workforce needs to boost the value each worker creates if it wants to keep growing.

Technology enables hardware and software to replace low-value labour, but we also need to expand investment in education and training so that every person available for work can add as much value as possible.

Canada already has a highly skilled workforce, but in the years ahead, we cannot afford to waste a single mind.  We have to make sure every single young Canadian is prepared and motivated to succeed through high school and into some form of post-secondary education.  Every adult should have access to opportunities for continuing education.

No matter how successful we are in upgrading the skills of our existing population, we also will need to attract more skills from abroad.

Companies increasingly can carry out almost any part of their operations anywhere that the necessary skills can be found.  They will invest where skilled people live or can be persuaded to move.

Governments in Canada and elsewhere are cluing in to the fact that increasing labour mobility can provide a competitive advantage.  Provincial governments are now committed to full labour mobility within Canada.  The North American Free Trade Agreement created a new class of work visas that enables many types of professionals to work easily across the continent.  Canada is aiming for increased labour mobility in other international agreements such as the Canada-European Union deal now being negotiated.

Labour mobility is a two-way street.  A jurisdiction that is easy to enter is easy to leave.  Canada has had its periods of worry about the “brain drain” to the United States, and as skills shortages bite deep across the industrialized world, the international competition for talent is going to get intense.

Canada will continue to suffer the disadvantage of being next door to the huge and dynamic economy of the United States.  Security-related border delays also will continue to hurt us.  Skilled people working for international companies need to travel and hate to wait.  Even perceived border risk encourages people as well as companies to locate south rather than north.

But Canada has advantages of its own, and it is important to understand and build on these strengths.

One of these is the diversity of our society.  Because of our success in attracting immigrants from around the world, our communities offer places where anyone from anywhere can feel at home.  As multinational companies evolve into increasingly multicultural enterprises, this diversity will become an even more important competitive advantage for our country.

Another growing source of advantage would probably surprise many Canadians, and that is taxation.  Canada’s fiscal performance over the past 15 years has enabled governments to cut both corporate and personal tax rates significantly even as public spending has risen to record highs.

We now have a significant corporate tax advantage over the United States that already is affecting business decisions.  But the huge government deficits being racked up in the United States guarantee years of rising tax rates in that country – and the result is that Canada could end up as the more attractive place to live from a personal as well as corporate tax perspective.

Members of Congress already take it for granted that the personal tax cuts of the Bush era are toast, and are looking to a high-income surtax to pay for expanded public health care.

I spoke to a Democratic Congressman recently who predicted that the top marginal personal income tax rate at the federal level could hit 45 percent – on top of any state and municipal income taxes and before the United States gets around to dealing with its effectively bankrupt Social Security system.

So to wrap up, make no mistake.  Canada, like other industrialized countries, faces a real and growing shortage of skilled labour in the years ahead.  It will have to compete with other labour-short economies in order to attract and retain the people that it will need.  But we start from a position of strength in this competition, and we can and should build on those strengths in the years ahead.