The Strange Economics of Temporary Foreign Workers

I was at a forum on labour shortages in Canada yesterday, organized by the Canadian Association of Sector Councils. (These consist of industry plus some labour representatives who undertake labour force planning activities, sometimes including sponsorship and promotion of training.) There was an interesting clash of economic and employer perspectives on the labour shortages issue.

Mike McCracken from Informetrica kicked-off the event with a good economist’s overview – there are some specific skills shortages in specific sectors and regions, but no generalized current or looming crisis. The labour force will continue to grow (especially with rising participation rates by older workers), and there is ample room for raising productivity and investments in training. Mike also flagged the fact that wages can and should rise to direct workers to areas of growing skills shortages, and that it would be a good thing for workers and for society generally if the labour market became much tighter after 30 years of slack (sometimes deliberately induced by macro-economic policy.). As he concluded, “bring it on!”

In my comments, I – of course – agreed with Mike’s general line and argued that what we have in Canada today is a “tale of two economies.” Yes, there are labour shortages in some regions and occupations (especially the skilled trades and many health care occupations) but there is no evidence of a generalized labour shortage. Outside of Alberta (and some other parts of Western Canada) , real hourly wages are basically flat, and the proportion of lower paid adult workers is not falling. If there were truly a tight overall job market, it would surely be registered in rising real wages. Moreover, we know that there are a lot of skilled workers being displaced from industrial jobs in central Canada. Employment rates are actually falling in Ontario and Quebec because of the industrial crisis. (Today’s paper alone tells me of big layoffs at Chrysler and Nortel.) And a lot of workers who are under-employed relative to their skills (eg many recent immigrants and young people leaving the education system.) In short there is a lot of positive potential to deal with specific regional and occupational shortages through investments in training and support for labour mobility, and I flagged some changes to federal programs, especially EI, which could help.

In the following discussions, the dominant employer response was to argue that labour shortages are serious and urgent, incuding at the lower skill end of the spectrum, and that the best way to deal with them is by ramping up the temporary foreign worker program. The quick fix is to bring in foreign workers asap (and, though this was unsaid, to ship them home when no longer needed.) Problem solved, with no need to improve wages and working conditions, let alone invest to boost skills and to raise productivity. The tourism industry and trucking industries put the point most forcefully, arguing that their very survival was now dependent on bringing in foreign workers. Federal government representatives in the room clearly signalled that they were listening closely.

The Conservative government has already begun to act. This government has already introduced a fast-track approval process for employers who want to recruit temporary foreign workers for hundreds of designated occupations in BC and Alberta, plus a much shorter list from Ontario. Flagged in last November’s economic agenda was a promise to expand the program in response to the needs of employers.

The key parameters of the program are that an employer will be given a permit to hire if they can satisfy Human Resources and Social Development (HRSDC) that that they have tried and failed to hire workers at the “prevailing wage.”

The operationalization of the term “prevailing wage” does not include consideration of benefits and overtime pay provisions – so temporary foreign workers being hired for construction and energy sector jobs in Alberta are, in fact, under-cutting established wages. (Many work very long hours for straight pay.) There have been recent instances where temporary foreign workers have clearly been hired at lower wages than domestic (often recent immigrant) workers who have been displaced, and also many examples where the promised wages have not been paid, or have been syphoned off to labour contractors.
Most importantly, it is surely strange economics not to require employers to show that they have tried and failed to hire at a modest increment over “prevailing wages.” How, otherwise, are shortages supposed to be signalled to potentially available workers?

The temporary foreign worker program might be needed in certain very specific circumstances. However, as it exists today, it is rife with potential for employer abuse. Unlike immigrants, temporary foreign workers normally have no right to switch jobs once in the country, and there is thus a serious imbalance of power between the worker and the employer. In a practical sense, most temporary foreign workers also have no means to access theoretical protections under employment standards (and indeed are often denied coverage through sectoral exclusions, as with agricultural workers.)

With relentless pressure from employers to further expand a flawed program, thisn issue is going to heat up.