[Canada] Economic slowdown needed to solve labour shortage

New research suggests the sizeable labour shortage that has developed in Canada in 2022 is likely to only be solved by an economic slowdown, Advisor's Edge reports.

In a new report from TD Economics, the bank’s economists examine the job vacancy surge that has emerged this year - at one point topping 1 million open jobs, according to data from Statistics Canada - and increased pressure to raise wages as policymakers battle to curb high inflation.

The labour shortages are most acute in sectors of the economy that were hit hardest by the pandemic, where wages tend to be low, according to TD’s report

The report noted that employment data from StatsCan reveals job growth since the start of 2020 has been strongest in higher-paying sectors, while poorly paid industries have reportedly seen weak or even negative growth.

“With many workers having left these sectors in search of higher pay, firms may be unable to fill these job openings,” the report said.

The obvious solution to attracting workers for sectors with large shortages is increasing pay but the report states that the levels of pay hikes that would be required are simply too large.

“In order to make the wage rate in these sectors competitive enough to draw workers back, the wage adjustment would need to be several multiples of the current wage growth rate, and that is just not viable,” it said. “We can’t see firms in low-wage sectors boosting wages enough to incentivize workers to come back.”

At the same time, the report reveals that it would “take years” to retrain enough workers to fill roles for jobs where a shortage of skills is the issue.

Instead, it said, the labour shortage is likely to be addressed by slowing growth.

“The most likely solution to the job vacancy gap in Canada is an economic slowdown that reduces demand for workers and brings the labour market back into balance.”

With interest rates rising sharply, and growth slowing, there are already signs of increasing slack in the labour market and this is expected to continue, according to the report.

“Given our forecast for the Canadian unemployment rate to rise from 5.2% to 6.5% in 2023, this would imply that the vacancy rate should fall from 5.4% currently, to the 3% to 4% range,” it said.

“This will ease wage pressures and better enable the [Bank of Canada] to achieve its goal of bringing down inflation. Though we recognise that cutting job openings is less favourable to filling those jobs, it appears to be the most likely solution to fixing the vacancy gap in Canada.”

Source: Advisor's Edge

(Quotes via original reporting)

New research suggests the sizeable labour shortage that has developed in Canada in 2022 is likely to only be solved by an economic slowdown, Advisor's Edge reports.

In a new report from TD Economics, the bank’s economists examine the job vacancy surge that has emerged this year - at one point topping 1 million open jobs, according to data from Statistics Canada - and increased pressure to raise wages as policymakers battle to curb high inflation.

The labour shortages are most acute in sectors of the economy that were hit hardest by the pandemic, where wages tend to be low, according to TD’s report

The report noted that employment data from StatsCan reveals job growth since the start of 2020 has been strongest in higher-paying sectors, while poorly paid industries have reportedly seen weak or even negative growth.

“With many workers having left these sectors in search of higher pay, firms may be unable to fill these job openings,” the report said.

The obvious solution to attracting workers for sectors with large shortages is increasing pay but the report states that the levels of pay hikes that would be required are simply too large.

“In order to make the wage rate in these sectors competitive enough to draw workers back, the wage adjustment would need to be several multiples of the current wage growth rate, and that is just not viable,” it said. “We can’t see firms in low-wage sectors boosting wages enough to incentivize workers to come back.”

At the same time, the report reveals that it would “take years” to retrain enough workers to fill roles for jobs where a shortage of skills is the issue.

Instead, it said, the labour shortage is likely to be addressed by slowing growth.

“The most likely solution to the job vacancy gap in Canada is an economic slowdown that reduces demand for workers and brings the labour market back into balance.”

With interest rates rising sharply, and growth slowing, there are already signs of increasing slack in the labour market and this is expected to continue, according to the report.

“Given our forecast for the Canadian unemployment rate to rise from 5.2% to 6.5% in 2023, this would imply that the vacancy rate should fall from 5.4% currently, to the 3% to 4% range,” it said.

“This will ease wage pressures and better enable the [Bank of Canada] to achieve its goal of bringing down inflation. Though we recognise that cutting job openings is less favourable to filling those jobs, it appears to be the most likely solution to fixing the vacancy gap in Canada.”

Source: Advisor's Edge

(Quotes via original reporting)