This week we will focus on economics and, more importantly, the employment challenges facing Canada.

Let’s start with a chart and then comment:

The above looks at the percentage of businesses reporting challenges in finding workers. As you can see, it hovered around 20% pre-pandemic, but has recently eclipsed 60%. The obvious reason for this would be the pandemic and the impact it has had on the pool of available workers, but that would tell only part of the story. Rather, employment has also been impacted by changing demographics, which will see ~23% of the population over the age of 65 by 2024. To put this in perspective, 20-years ago, this percentage was below 15%.

What’s interesting is, Canada’s labour participation rate has trended down from ~66% two decades ago to ~64% now, but when we adjust for the aging population, participation has actually trended up to ~68%. In other words, were it not for demographics, Canadians would actually be more willing to work.

The pandemic has helped to make the above worse and has been especially negative for certain segments of the economy:

With COVID and the risks associated with professions that can only be done “in person”, such as the restaurant and hotel businesses, we have seen a sharp migration away from these industries and toward those that are less client facing or can even be done remotely.

Now, normally, with charts like the above, we would expect a sharp rise in wages and wage expectations to help attract workers back to the workforce and more specifically to those industries that are really suffering. However, this has not been the case with wages growing between 2-3% (not much different that the last 15-years) and wage growth expectations settling right around 2%:

So where does this leave us? For that, we will turn to RBC Economics and how they see “the Road Ahead”:

“Higher wages aren’t the only thing workers are seeking in their post-pandemic careers. Though shortages have put them in a strong bargaining position, workers’ wages expectations haven’t changed much. They are however, increasingly looking for more “suitable hours”, according to BoC surveys. Those contending with child and elder care are seeking greater autonomy in work scheduling. And indeed, the most resilient industries through the pandemic have been in professional, scientific, and technical fields where working from home is easier.

So while higher wages will be part of the equation, firms looking to hire from within a limited talent pool will also need to place emphasis, where possible, on more holistic employment offerings. Higher planned immigration rates will also help, as will business plans for more investments in machinery, as well as in digitalization, that could boost productivity of existing workers. But those investments take time to bear fruit. In the meantime, it looks likely that labour shortages will continue to intensify, putting a cap on the productive potential of the economy, slowing growth and keeping upward pressure on costs.”