The coming months may be less extreme, economists said, but Canada should brace for similar troubles as the United States.

By Matt Lundy - Economics Reporter* - June, 2021 

The United States finds itself in a peculiar situation: Its companies are struggling to find workers, despite the millions of Americans who remain jobless after pandemic layoffs.

As the U.S. quickly disposes of lockdown measures, hiring has become something of a headache. Job openings have surged to a record, but small businesses are also reporting their greatest ever difficulties in filling positions.

Analysts have thrown out a handful of explanations – everything from parents struggling to find child care, to lingering health concerns, to generous income supports that have left workers in no rush to accept job offers.

Now that Canada is starting to reopen, can it expect the same? The coming months may be less extreme, economists said, but Canada should brace for similar troubles.

“Presumably, there’s going to be a lot of recruitment of workers” this summer, said Mikal Skuterud, a professor of labour economics at the University of Waterloo. “Every indication is we’re going to see similar kinds of pressure” as the U.S.

As it stands, Canada has a shorter path to recovery. It’s recouped 83 per cent of its pandemic job losses, next to the U.S.’s 63 per cent, and done a much better job of keeping people in the labour force. Canada’s wage-subsidy program, while maligned over its hefty costs and use by profitable companies, has kept millions of workers connected to their employers.

“At the end of the day, [the subsidy] has kept employees a little more engaged with their employers” than in the U.S., said Doug Porter, chief economist at Bank of Montreal.

A concern is existing income supports, and how they affect workers’ incentives. Around three million people are receiving jobless benefits through Employment Insurance or the Canada Recovery Benefit, which can be tapped by the self-employed. Both of those programs pay out at least $500 weekly before tax.

Where they differ, however, is the treatment of earnings. Under EI, recipients must pay back $0.50 in benefits on the first dollar of employment income, whereas under CRB, the 50-per-cent clawback rate applies to annual net income above $38,000.

“The current systems benefit disproportionally the low earning self-employed – a factor that is no doubt at least partly behind the fact that self-employment has been very slow to recover,” said CIBC Capital Markets economists Benjamin Tal and Andrew Grantham in a recent report.

The federal budget proposed dropping CRB benefits to $300 weekly next month, with the program ending in September. The $500 floor on EI jobless benefits will also end in September. (A hiring subsidy is slated to launch this month, offsetting a portion of extra payroll costs, such as new hires, higher wages or more hours.)

“When you make those kinds of changes at the margin, you create a bit of motivation to go back” to work, Mr. Tal said in an interview.

Tentatively, there are signs of growing labour demand. In March, the number of job vacancies surged by 25 per cent from the previous month, or roughly 125,000 positions, according to Statistics Canada. (The ensuing two months may look dicey, owing to the third wave.) Furthermore, the number of job postings on hiring site Indeed Canada is about 20 per cent higher than before the pandemic.

Labour advocates say there’s a quick solution to any worker shortage: raise wages. That’s what a slew of major U.S. employers are doing, including Amazon.com Inc., Chipotle Mexican Grill Inc. and McDonald’s Corp. Others are trying to avoid that, opting for signing bonuses and other one-off incentives.

“It makes no sense to talk about a labour shortage without talking about wages,” Prof. Skuterud said. Under current circumstances, “there will be upward pressures on wages.”

He said there might be deeper structural changes to the job market, owing to a confluence of factors such as automation, reorganization, business failures and new companies. Workers may wind up looking for jobs that no longer exist, or are in short supply.

There’s also the scenario that workers have moved onto different sectors.

“A lot of our staff decided to change careers,” Eric Lefebvre, chief executive of MTY Food Group Inc., told analysts in April. MTY has thousands of fast-food restaurants under dozens of brands in Canada and the U.S. Some former employees have become Amazon drivers, he said, rather than wait for restaurants to fully return.

As for the U.S., the very premise of a worker shortage is contentious. Roughly 8.2 million fewer Americans are employed than when the health crisis started. And while there’s been a rush of job openings, millions of people have stopped looking for work. A recent paper from the Federal Reserve Bank of San Francisco said labour indicators are often telling different stories, but that “negative signals ... provide a better read than do the positive signals.”

It may simply take more time for Americans to re-engage with the labour market as their pandemic savings and jobless benefits dwindle.

“The minute you stop the [income] assistance, those workers will be back,” Mr. Tal said.

BMO’s Mr. Porter cautioned against reading too much into short-term labour data.

“This is such an unusual economic episode we’re living through,” he said. “We have to be humble and careful in assessing really any statistics.”

 

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About the Author

*Matt Lundy is an economics reporter for The Globe and Mail's Report on Business section.

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