No one to work, but wages are rising: Canada's supply and demand crisis

As the threat from the coronavirus diminishes amid the rapid vaccination process, business activity among Canadians is also increasing. However, employers are finding it increasingly difficult to fill empty positions. In the U.S. and the U.K., many companies are facing the worst labor shortages on record in decades.

Labour shortages

"There's a shortage of workers. We see it," commented Julie Labrie, president of bilingual staffing company BlueSky Personnel Solutions.

The country's job market was strained before the pandemic, she said. But now Julie is hearing from companies that have not been able to fill their vacancies for three or four months:

"Competition to recruit new staff is fierce, with qualified candidates regularly receiving multiple offers and only agreeing to work on the most favorable terms," Labrie added.

Anecdotal evidence suggests that employers are willing to pay more when they find the right employees. As Labrie pointed out, the labor shortage has already led to a surge in wages. Some employers are willing to raise salaries by as much as $10,000 CAD for new hires.

The mismatch between supply and demand in the labor market was already evident in the spring, as noted by Mikal Scuterud, an economics professor at the University of Waterloo:

"There are far more vacancies in our labour market than there are workers willing to fill them. To sweeten the deal, employers are also increasing billable hours — many now offer four weeks of vacation time and readily agree to employee requests to work remotely for at least part of the time. And if the virus continues to recede, the country's labor shortage is bound to become even more acute."

As more and more people begin to realize that the economic recovery will take longer, Julie Labrie expects that Canada will soon be slammed with waves of self-employment layoffs. People are now dropping out of the jobs they held onto during the pandemic and looking for new ways to make money. And the current labor shortage is just the beginning.

"Wedge" in the labor market

While many employers are struggling to increase hiring, the national economy has yet to close the gap of about 0.5 million jobs to make up for the labour market losses it suffered in March and April 2020, the start of the pandemic. Despite the growing number of job openings, about 2 million Canadians say they want to work but don't have a job.

As Professor Scuterud points out, Canada has experienced what is commonly referred to in the labour market as a "wedge" situation. It is likely that many Canadians simply do not want to return to their workplaces. Many are still worried about whether it is safe to work because it remains to be seen how effective the new antiviral vaccines are.

The lack of childcare options can also make it difficult for parents to get back to work: after lengthy interruptions, some daycare centers have stopped working altogether, and many summer camps have decided never to open in 2021 to limit their costs.

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Julie Labrie laments that there are now very few people in Canada willing to work in the hospitality, retail and restaurant industries. Many service sector jobs are poorly paid, can be unsafe and force more requirements than before because of safety protocols.

How do workers survive?

Some workers think they can live off government benefits throughout the summer to make sure a fourth wave of coronavirus doesn't hit the country.

Canadians can now apply for recovery benefits until September 25, with the amount reduced from $500 to $300 pre-tax during the summer. Pandemic-related improvements to employment insurance benefits for the unemployed will also run through September. Both benefits require claimants to actively look for work at the time of application.

Canadians under the age of 35 were among the hardest hit by job losses in the spring of 2020. They made up the bulk of the 1.3 million Canadians who had been unemployed for more than 6 months as of last September.

The current economic crisis could have a significant impact on the earning potential of young workers and employees in Canada. It may take more than 10 years to catch up financially. As we know, economies often take a long time to recover from a typical recession.

But economists predict that the country's recovery from the economic downturn caused by COVID-19 could also be very quick. As economic growth picks up quickly, labour shortages are even playing into the hands of young Canadians.

New graduates are now able to start their careers at a higher corporate level simply because employers are more willing to train inexperienced employees. In the retail sector, for example, businesses are experiencing a significant loss of experienced employees who have moved on to other industries. But there has also been an increase in investment in training new employees.

According to Olivier Bourbeau of national association Restaurants Canada, there has also been a noticeable exodus of experienced employees from the restaurant business.

What's the prognosis for the future?

It remains to be seen whether widespread wage increases caused by labour shortages will lead to sustained national economic growth and better living standards for workers or to inflation.

For retailers that suffered large losses during the pandemic, the costs of training new staff and higher compensation make it difficult to invest in business expansion, economists say.

In the restaurant sector, where profits are often already very low, some establishments are opting to work reduced hours due to problems finding employees. Small businesses from the retail and catering sectors are equally burdened by debts accumulated over the last 14 months, so they can no longer develop their business at an adequate level.

There are great fears that the current timetable set by the federal government to phase out support for small businesses through September 25 this year (such as the Canadian emergency wage subsidy and the rent subsidy) will not lead to anything good. Ultimately, if the mismatch between labour demand and supply continues, it will seriously stunt the country's economic growth.

According to Professor Scooterud, when there are jobs to be filled and workers who, for whatever reason, do not fill them, the country can face a production volume crisis. However, we need to do everything possible to achieve the necessary balance and begin to resolve the current situation.