In an important way, the purported skills shortage reflects complacency, as well as the short-sighted economics of Canada’s corporate sector. In sectors as disparate as manufacturing, oil and gas, financial services, information technology and tourism, Canadian companies eschewed investments in innovation and productivity improvements while gradually allowing total compensation to decline against their American counterparts. Today, many Canadian firms struggle to be globally competitive. The affordability of labour is the cornerstone of this dynamic.
Published in the Telegraph-Journal 30th April 2013
The scandal around the use of temporary foreign workers by some firms in Canada has re-opened the discussion about what’s causing a shortage of workers in industries across the country. And it has raised questions about whether there is a skills mismatch or even if there is the kind of shortage that cannot be addressed by conventional means.
Speaking to the Commons finance committee for the last time before his departure for London in June, Bank of Canada governor Mark Carney said that there are shortages of some skilled trades but pointed out that Canada has one of the most flexible labour markets in terms of mobility among advanced countries.
The problem of unemployment is most acute in places with rigid labour markets. Countries with limited mobility of labour, high taxes on hiring, too-strict rules about firing and high minimum wages have some of the highest unemployment in the world. In some countries, cartelized industries, powerful trade unions and complex regulatory regimes on work and compensation conspire to keep unemployment high. But one would need to very heavily massage the data to view Canada as one of these countries.
“There are some signs of skills miss-matches (but) we do believe employers play an important role to ensure life-long skills development is a part of the nature of business in Canada,” Carney told the finance committee. He argued against increased reliance on the controversial temporary foreign workers program. He stated that the program was more suitable for temporary shortages of high-skilled workers than service jobs and other lower-wage categories that critics claim are now being filled by foreign imports.
He argued that if there is a shortage of workers to fill unskilled, low-paying jobs, it is important to allow the market and wages to adjust over a reasonable timeframe rather than try to solve the problem by bringing in foreign workers. The solution to that problem, said Carney, is for employers not only to “make sure Canadians are paid higher wages, but also that the firms improve their productivity.”
This solution is particularly challenging for firms in Atlantic Canada which have long relied on paying workers lower wages and benefits compared with their counterparts in the rest of Canada. Over time, this wage differential has become integrated into the operating cost structure of many companies who leveraged that differential to avoid improvements in productivity or investments in innovation.
Deregulating labour markets even further may be required to successfully address worker shortages and ease unemployment. But it will not be enough on its own. There are examples of where more innovative approaches have paid dividends. Countries which have better skills matching and unemployment records tend to be more activist, helping to find jobs for those who are struggling. Germany pays a proportion of the wages of long-term unemployed workers for the first two years. It has the second-lowest level of youth unemployment in the developed world. The Scandinavian countries provide young people with individualized plans to integrate them into employment or training programs. These approaches can be usefully tailored and adopted by Canadian jurisdictions.
The broader solution lies in starting in the right place. Technology is helping democratize education and training but only among the literate. The root of the competitiveness challenges that plagues Atlantic Canada is the persistently low levels of literacy across the region. What is needed is an education and training revolution that is appropriate to the scope and scale of the problem beginning with a thoroughgoing multi-generational commitment to eradicating illiteracy. What is needed is a dramatic expansion of the study of science and technology and closing the gap between education and the needs of the workplace. And what is needed is a generous investment — by government and industry — to upgrade vocational and technical education and to substantially expand apprenticeships. The clear implication of such an approach is that it is necessary for firms and educational institutions to forge closer relationships with each other. This would require a change of attitude that is long overdue.