In this article, Adecco Canada’s John Cappelli, VP of Onsite Managed Services; Priscilla LoStracco, Director of Customer Success; Andrea Mancini, Director of New Business Development; and Christian Robert, Manager of Business Intelligence and Data Analytics discuss the state of the labour market today. Our recruitment experts weigh in on Canada’s declining labour force participation, insufficient immigration, labour supply and demand, and rising inflation rates to explore how organizations can beat the competition for talent in their local market.
Canada’s labour crisis in 2021
In a nutshell
In 2021/2022, there is no labour shortage in Canada. The country is in a labour crisis.
Back in September 2018, the Development Bank of Canada (BDC) released a report entitled, “Labour Shortage: Here to Stay.” In it, the BDC stated, “We do not expect labour shortages to get better for at least a decade.”
In a more recent BDC study in 2021, “How to Adapt to the Labour Shortage Situation,” the BDC wrote:
“Canada’s labour force problem did not begin with the pandemic. It is the result of the aging population and related declining labour force participation, which started over 20 years ago. The pandemic has amplified the problem by destabilizing an already-precarious situation.”
What does this tell us? It tells us that COVID-related health regulations and government subsidies like CRB are not the only (or even the main) reasons behind the struggle to fill job vacancies. To understand why it’s so hard to hire employees beyond surface-level pandemic-related contributors, we must look deeper, starting at the demographic make-up of the workforce in Canada.
Canada’s decline in labour force participation
A close-up view of the workforce today will show a large discrepancy between the number of young workers entering the workforce and the number of older workers retiring out of it.
Specifically, Canada’s aging population is putting significant downward pressure on labour force participation. People between the ages of 55-59 are the largest demographic group in the country. According to Statistics Canada, 36% of the Canadian working population will be 55 years of age or older by 2023, rising to 39% by 2028.
Soon, these older workers will retire, leaving organizations with an even greater need for new employees. A whopping 3.9 million positions are expected to open because of retirements between 2019-2028.
The disproportional population share of soon-to-be retirees is not the only red flag out there, either. Labour force growth is slowing at the same time and there aren’t enough young professionals entering the workforce to counterbalance the mass exit of older workers.
According to Immigration, Refugees and Citizenship Canada, Canada expects to add 214,200 workers and 564,000 new jobs to the market each year—that’s roughly double the number of job openings than workers able to fill them.
As the aging population retires and labour force growth slows, the country’s labour force participation rate is set to decline in the next decade. Ultimately, Canada will face a large deficit of people participating in the labour market.
Canada’s insufficient immigration rates
Normally, what Canada lacks in its domestic workforce, it compensates for through immigration. Immigration is a key piece of the country’s labour market; about 1 in every 4 workers in Canada are immigrants.
However, when the coronavirus hit, the number of immigrants, foreign workers and foreign students able and willing to enter the country dropped. In 2020, immigration to Canada fell 46%—a low not seen since 1998. The drastic fall in immigrants compounded the strain on the already struggling labour market.
Post-pandemic, data suggests immigration appears to be recovering, although end-of-year numbers have not yet been officially released for 2021. At the time of writing, Canada is on track to hit its 2021 target of 401,000 permanent resident admissions this year and is also planning to accept another 411,000 in 2022 and 421,000 more in 2023.
Despite this, current immigration projections are insufficient to fill the gap in labour force growth. It’s expected that by 2030, Canada’s population growth will rely exclusively on immigration.
“In 2020, the country welcomed only 184,000 immigrants instead of the 314,000 that was actually planned. It will take years to recoup that loss, even with the projected growth of immigration. This data shows us that Canada must be prepared to compete internationally for young, skilled and remote workers.” — Priscilla LoStracco, Director of Customer Success
Canada’s labour supply and demand mismatch
Yet another contributor to Canada’s labour crisis is the redistribution of labour between industries. It’s clear that the economy emerging from the pandemic is much different from the one preceding it.
Specifically, the division of labour across industries has changed. Although employment as a whole has returned to pre-pandemic levels, employment in 10 industries is still below February 2020 numbers; among them, wholesale and retail trade, manufacturing and information, culture and recreation. Meanwhile, 7 industries, including health care and social assistance, insurance and real estate and public administration, have surpassed pre-pandemic levels.
“An economic shift has occurred. Post-pandemic, we see a mismatch between labour supply and demand, which partially explains why we’re experiencing a high unemployment rate and high job vacancy rate at the same time” —Christian Robert, Manager of Business Intelligence and Data Analytics
Many of the industries facing extreme hiring challenges are the frontline sectors that were hit hardest by the pandemic. During repeated lockdowns, temporary lay-offs and other pandemic-caused events, experienced workers left their jobs to seek employment in other sectors. Less exposure to the virus, higher salaries, remote working environments, improved work-life balance and career changes were all significant motivations among workers. As a result, there’s a mismatch between what the recovering economy needs and what job seekers want.
Canada’s rising inflation and cost of labour
Inflation is another noteworthy contributor to today’s labour crisis.
Current wages aren’t enough to accommodate the rising cost of living. The Government of Canada cites a 4.1% year-over-year rise in the Consumer Price Index (CPI) in August 2021. This is the highest increase seen in 18 years and about 400 times what it was in 2020. Plus, the Bank of Canada projects a 3% or higher inflation rate throughout 2021 and a 2-3% increase for 2022, which is well above the last decade’s average.
Inevitably, the jump in cost of living will put heavy pressure on wages. To attract and retain talent from a shrinking pool of qualified candidates, businesses must meet their applicants’ changing expectations. In simplistic terms, as the demand for workers rises, so does the call for increased compensation.
In a recent Reuters article, reporter Julie Gordon interviews Adecco’s Tanya Cerniuk, VP of Sales, about the necessity for employers to incentivize candidates with not only wage increases, but also signing bonuses and hourly premiums based on attendance and retention.
Workers today are more selective about the roles they accept. They’re looking for more holistic compensation packages that include salary, benefits, paid vacation, work-life balance and flexibility.
“From an employer’s perspective, the cost of labour is the sum of all wages paid to employees as well as the cost of employee benefits and payroll taxes paid. Although salary is an important part of cost of labour, we need to consider the candidates’ perceived value of a job offer, which is not limited to just salary.” — Andrea Mancini, Director of New Business Development
The low supply of labour coupled with the high demand for labour will inevitably create a price increase for businesses. However, John Cappelli, VP of Onsite Managed Services explains that raising wages isn’t necessarily a loss for employers when compared to the non-productivity they’re facing during this talent shortage.
“Companies willing to place a value on the non-productivity caused by a lack of workers, and allocate that sum to increasing wages, are seeing more growth and higher retention rates than their competitors.”
In summary: the labour crisis in Canada
Here today, here to stay
The competition for talent among businesses beyond the pandemic is fierce. It’s important to acknowledge that the labour shortage won’t resolve itself as pandemic-related restrictions and government subsidies end. The country’s aging population will continue to put downward pressure on the participation rate of the workforce while young workers and immigration rates will fail to match the rising numbers of job vacancies in struggling industries. Meanwhile, inflation will push wage expectations higher.
To date, long-term projections for Canada’s labour shortage extend to 2028-2030. That means the need to adopt new internal hiring strategies is paramount. Organizations must adapt quickly to appeal to eligible job seekers.
While data can help us to better understand the labour shortage on a macro level, how do businesses connect the dots in their local market? If you’d like assistance with your immediate and ongoing hiring challenges, connect with Adecco Canada!
Adecco is Canada’s largest recruitment solutions and HR consulting services company. Our network of 50+ branches serves thousands of organizations across the country each day as we endeavour to “transform the world of work through people who love what they do.”