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September 19, 2022

From: Parisa Mahboubi and Tingting Zhang

To: Canadians Concerned About Labour Shortages

Date: September 19, 2022

Re: Canada’s Evolving Labour Shortage Challenge

All business sectors, regardless of size, are facing hiring difficulties. Vacancies are increasing, but there is a dearth of job seekers.

As the boomers age, labour shortages will only get worse, limiting economic growth and hurting all Canadians.

Here’s what the latest numbers look like.  

According to Statistics Canada, there were 957,500 vacant jobs (seasonally adjusted) in the first quarter of 2022, the highest quarterly number on record. This is up 72.3 percent from (pre-pandemic) Q1 2020. Healthcare and social assistance, accommodation and food services, and retail trade had the bulk of the vacant jobs.

Vacancies continued to increase and remained over a million in June 2022 (non-seasonally adjusted) for the third consecutive month, making it harder for employers to fill job openings. With a record low unemployment rate of 4.9 percent in June, there was less than one unemployed person per job opening in Canada.

And things aren’t expected to improve. According to the most recent Canadian Survey on Business Conditions, nearly two-fifths of businesses anticipated hiring challenges in the third quarter.

Although there were more people either employed or actively looking for work in August 2022 than February 2020 (by 1.7 percent), the number did not keep pace with the growth of population aged 15 and over (2.9 percent), largely because of lower participation rates for those older than 54.

Between February 2020 and August 2022, there was a large increase in the population aged 55 and over (by 5 percent) but almost no change in their overall labour force participation as thousands headed for early retirement with the pandemic. While the early retirement boom might be temporary and a consequence of the pandemic, the trend needs special attention and a policy response.

Statistics Canada’s latest population projections show that as the youngest baby boomer turns 65 in 2030, more than one-fifth of the total population would be of conventional retirement age. Meanwhile, the proportion of children (aged 0-14) is trending downward. Therefore, labour supply is expected to decline in the next decade.

While immigration will remain a part of the solution for addressing shortages, a C.D. Howe study shows that a longer working life can ease the demographic transition, without a shift toward higher immigration. Seniors today are healthier and living longer than ever. Indeed, delaying retirement may itself contribute to seniors’ health.

Furthermore, although the labour force participation rate of 20 to 24-year-olds (77.9 percent) recovered to pre-pandemic levels last February, it has since slipped to 75.7 percent as of last month. For this age group, return to school is a factor, but the August participation rate for both students and non-students in August 2022 were below those in August 2019. Lower participation rates among young people can mean lower skill levels and experience, which can affect future employment opportunities. And since this cohort is already shrinking, the need for targeted labour market programs and policies to encourage greater participation become all the greater.

To increase the candidate pool, businesses need to offer workplace flexibility (i.e. part-time positions, flexible hours, and remote work arrangements) and better compensation packages and benefits. Using human resource practices such as training and flexible scheduling not only improves retention and encourages later retirement, but also attracts more mothers to join the labour market. Historically, female labour force participation has always been lower than their male counterparts. Closing that gender gap would add half a million more people to the labour force.

Businesses can also invest in automation and diversify their potential talent pools to further mitigate labour shortages. There are many people underutilized in the labour market, such as women, new immigrants, Indigenous people, and less-educated workers. If businesses can modify their hiring standards toward specific skills instead of education requirements and provide necessary training, these underutilized talents can fill many job vacancies.

In order to help businesses to better cope with demographic challenges, governments should play a more proactive role in raising businesses’ awareness about automation and incentivizing them in investment through funding programs or tax credits. Adopting technology can improve workers’ productivity by freeing up existing workers for more value-added tasks.

Government and business should also work together to address barriers to employment and enhance labour market attachments. Finally, governments also need to ensure upskilling, reskilling, and skills matching opportunities are accessible to everyone.

Parisa Mahboubi is a Senior Policy Analyst at the C.D. Howe Institute, where Tingting Zhang is a Junior Policy Analyst.

To send a comment or leave feedback, email us at blog@cdhowe.org.

The views expressed here are those of the authors. The C.D. Howe Institute does not take corporate positions on policy matters.