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The Progressive Economics Forum

Is Canada Facing Acute Skill Shortages?

Given the rapid expansion of the temporary foreign worker program and the frequent complaints of employers that workers are hard to find, one might expect that Government of Canada research would support the view that there are, and will continue to be, pervasive skill shortages. Yet this is not the case.

The most recent ten year outlook for the Canadian labour market was released last year by Human Resources and Social Development Canada.

(Human Resources and Social Development Canada . October, 2006. Looking Ahead: A 10 Year Outlook for the Canadian Labour Market (2006-2015.)

It states that “no widespread labour shortages are expected to emerge over the next ten years” mainly because the Bank of Canada will ensure labour demand does not outstrip supply. (p1) There are expected to be some shortages of skilled workers at a detailed occupational level, but no generalized problem, and no generalized shortage of lower skill workers, despite the pending retirement of baby-boomers.

In fact, the report anticipates that the entry of highly-educated young Canadians and immigrants into the work force will be more than sufficient to meet our needs for highly-skilled workers. There is forecast be a 1.6% annual growth to 2015 in the number of jobs requiring a university degree, but this will be more than matched by 2.2% annual growth in the number of workers with university qualifications.

The historical section of the report notes that, in recent years, “the strong rise in demand within high-skilled occupations has been adequately met by a rising supply of qualified workers. Real wages by broad skill level relative to the economy-wide average have been fairly constant since 1997 (suggesting) the absence of significant imbalances between the skills demanded by employers and the availability of qualified labour.” (p.4.)

In fact, the report found that there has been some increase in the unemployment rate of university-educated workers compared to those with lower qualifications, and some slippage in their relative earnings in recent years. “An increasing proportion of individuals with post secondary education can be found in low-skilled occupations … the proportion of university-educated individuals in low skilled occupations (rose) from 12% in 1990 to about 17% in 2005, providing some evidence that there my be an over-supply of university graduates.” (p.27.)

The report undertakes an evaluation of skill shortages at a detailed occupational level in 2003-05, using a methodology developed by the US Bureau of Labor Statistics which looks at three factors within an occupation: employment growth, the unemployment rate, and wage growth. To be considered an occupation under pressure, employment growth must be at least 50% greater than average; the unemployment rate must be at or near historically low levels, and wage growth must be at least 30% greater than average.

Using this methodology, it was estimated that 32 occupations representing 11.4% of overall employment in 2005 were showing signs of excess demand. Almost all of these occupations required post secondary or apprenticeship training, and most were in professional health and management occupations. Nine occupations, all low skilled, were found to be in a situation of excess supply, with rising relative unemployment rates, job losses, and falling wages

This methodology would strike most economists as reasonable, but does not appear to be that which is currently being used to determine so-called occupations under pressure as part of the labour market opinion process used by Human Resources and Social Development Canada in administering the Temporary Foreign Worker Program. In fact, employers who wish to recruit temporary workers under this program must only pay the currently prevailing wage, and are not required to show that they have tried to recruit workers by raising wages.

Employers do not like to improve wages and working conditions to recruit workers, but this is the single most powerful indicator that alleged labour shortages do, indeed, exist.

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