Is there really a national skills shortage? The evidence is thin

Despite claims of politicians

(Photo: Norm Betts/Bloomberg/Getty)

(Photo: Norm Betts/Bloomberg/Getty)

Nearly five years after the recession, the country’s unemployment rate sits above its pre-downturn level, at 7.2%. One theory to explain this is that the country is grappling with a skills mismatch—there are plenty of jobs available, but Canadians don’t have the necessary training to do them. The federal government talked up this idea leading up to the release of its 2013–14 budget. Human Resources and Skills Development Minister Diane Finley characterized the mismatch as possibly “the biggest socio-economic challenge that we have” right now because they hinder job creation and economic growth.

The weight of evidence, however, suggests the skills mismatch is exaggerated. A recent Bank of Montreal note pointed out the percentage of businesses reporting difficulty hiring in the Bank of Canada’s business outlook survey is 25%, well below the 15-year average of 35%. When severe labour shortages do exist, employers typically respond by raising pay. That’s not happening either. Wage growth has averaged around 2% annually, roughly in line with inflation. “For the economy as a whole, I don’t feel it’s our most pressing problem,” says BMO chief economist Doug Porter. “A shortage of jobs is actually a bigger issue.” Finley’s own department examined labour projections from 2011 to 2020 and found there was “limited evidence of imbalances between labour demand and supply in recent years.” The study concluded “no major imbalances by skill level are projected over the next decade.”

So what’s going on? Turns out there are genuine labour shortages in some parts of Alberta and Saskatchewan, particularly in resource extraction industries, but it’s not a national issue. Experienced workers for western oil, gas and mining firms may indeed be in short supply, and unemployed Canadians may not be willing to move their families to the Prairies. The issue is likely that firms are simply not raising wages enough to entice job-seekers. There are concerns that in some cases companies have little incentive to do so when they can access inexpensive labour through the federal Temporary Foreign Worker Program, which has expanded dramatically over the past few years. The number of temporary foreign workers has increased 36% to 338,189 since 2008. The federal government is currently reviewing the program.

Skills shortages will continue to exist in certain industries and regions, but not enough to jeopardize the entire economy. The HRSDC study pointed out the health-care and resource sectors will face hiring challenges, for example. How governments respond is important, though. Encouraging people to flood into any particular industry can backfire if circumstances change. “The idea that you can perfectly manage a labour shortage is nonsense,” says Alex Usher, founder of Higher Education Strategy Associates. A better approach, Usher says, is to ensure job-seekers have easily accessible labour-market information to make their own decisions. Talking up a skills mismatch that doesn’t exist could actually make things worse.