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Do labour shortages exist in Canada? Reconciling the views of employers and economists

The question of whether Canada’s economy suffers from labour shortages has been viewed quite differently by employers and economists. The business community almost universally identifies shortages as a problem, especially for skilled workers. That shortages so far have been less severe or widespread than just before the 2008 recession does not mean they are non-existent. Economists are more skeptical, recalling past warnings of shortages that did not materialize while noting that business forecasts of shortages could be motivated by the self-interest of lobbying for measures that boost labour supply and put a lid on wage costs. Moreover, the available data on vacancies and wages seem benign, at least at the national level. This paper attempts to reconcile these two seemingly opposite views. First, it concludes that employers, drawing on their experience with shortages before the recession, have been more innovative in adopting strategies to increase labour supply. These include encouraging employees to delay retirement and work longer hours (nearly one-third of Albertans work over 50 hours a week). However, working incumbent employees more intensively is not sustainable in the long term, especially for older workers. Much concern about shortages is based on the looming retirement of the boomer generation, especially since new sources of labour supply take time to adapt. However, economists note that the track record of predicting shortages based on the need to replace retirees is poor: Europe today is an excellent example of an older society without a shortage of labour. The next point is the existence of a record gap between unemployment for adults and youths. This distorts measures of available labour supply that economists study if employers do not regard youths as substitutes for older workers. The reasons for the high level of youth unemployment at a time of shortages in some sectors partly reflects the skills youths have acquired, especially their marked shift from community colleges to university education over the past decade. Youth unemployment also is high because their participation rate has stayed high, especially among teenagers and full-time students who employers are reluctant to hire. Meanwhile, training conducted by firms has lagged, leaving the public sector increasingly responsible for human capital formation. Not surprisingly, labour market outcomes have deteriorated too. Finally, national wages have not accelerated markedly due to lingering slow growth in central Canada. This has masked a clear upturn in wages in most Western provinces and in Newfoundland. Firms have also resorted to a wide range of non-wage benefits to induce people to join them, partly to avoid having to pay more for their incumbent employees.