The Labour Market: Shortages, Uncertainty and Transitions

Two underlying themes for the Spring 2022 Bennett Jones Economic Outlook are supply shortages and economic uncertainty. These themes also resonate in analyzing developments and prospects in the Canadian labour market more than two years after the outbreak of COVID.

Jobs recovery in Canada since the COVID lockdowns has been strong. The number of employed Canadians in May was nearly 500,000 greater than its pre-COVID level. The unemployment rate, at 5.1%, was at an historic low.

Of course, the corollary of tightness in the labour market, when growth of demand in the economy is still robust, is a shortage of workers that is now felt across wide ranges of occupations and income levels.

Correspondingly, bargaining power is shifting to workers, but the impact of this shift on wage rates to date is muted. Wages are increasing (average hourly wages are up 3.9% year-over-year in May to $31.12) but not as fast as prices. Canadian workers and unions appear cautious about exercising their leverage so soon after painful lockdowns and amid future economic uncertainty.

The distribution of wage gains across sectors is uneven. Over the past year, wage increases have been significant in sectors paying low to middle average wages. They have continued to be strong in sectors employing highly skilled workers and thus paying higher wages. In the middle, including health care and education, workers have experienced only modest wage growth.

A range of interventions from governments and businesses will be required to address labour shortages. Incentivizing and enabling greater participation in the labour force, aligning skills training with market demand, and facilitating the entry of global talent should remain government priorities.

For their part, businesses have no choice but to enhance their offerings to current and prospective workers, invest in productivity-enhancing technology to grow output per worker, and experiment with new forms of work such as hiring global talent that works remotely.

At the same time, employers and employees must adjust to changes in the marketplace affecting where, when, and how we work (e.g., hybrid work, vaccination policies) while the wider economy also undergoes structural transformations driven by technology and climate change.

Whether today’s acute labour shortage will continue will depend not only on responses of governments, employers and workers but also, clearly, on the evolution of the economy which is subject to considerable uncertainty at this time.

Balancing labour supply and demand in a changing and uncertain world can be expected to continue to represent a foremost challenge for Canada’s longterm prosperity.