Employer Responses to Labour Shortages
Over the last few quarters, job vacancy rates have reached record levels in Canada. Population aging declines in immigration inflows during the COVID-19 pandemic, and career reorientation among individuals previously employed in sectors hit hard by economic lockdowns have been cited as potential drivers of the increase in job vacancies.
As the labour market recovers from the COVID-19 pandemic, it is imperative to assess which strategies Canadian employers plan to use over the next few months to cope with labour scarcity. These strategies have important implications for the costs and profitability of firms, the rates of pay, working conditions and training opportunities of Canadian workers, and wage-price loops feeding inflation.
Businesses that expected labour shortages at the beginning of 2022 were far more likely to report that they would start increasing the wages of new and existing employees in the same year compared with other businesses that did not report expected labour shortages. They were also more likely to report that they would provide flexible work arrangements and increase the human capital of their workforce. In line with these differences, the growth in mean wages expected in 2022 in establishments expecting labour shortages is, on average, higher (6.1%) than among other establishments (3.6%).
Of all the private sector businesses considered in this study, 38% expected labour shortages to be an obstacle for the organization at the beginning of 2022 over the next three months. Establishments most likely to report labour shortages as obstacles were construction, manufacturing, retail trade, and accommodation and food services. Weighted estimates from CSBC indicate that establishments reporting labour shortages as an obstacle accounted for 60% of total paid employment of the establishments considered in this study.
These businesses plan to implement personnel recruitment, retention and training measures in 2022. Close to half of them (46%) plan to increase the wages of new employees, four times the rate of 11% reported among other businesses. Almost two-thirds (64%) plan to increase the wages of existing employees, compared with 34% of other companies. Twelve percent plan to offer signing bonuses or incentives to new employees, four times the rate of 3% reported among other businesses.
One obvious strategy is to increase the wages and benefits of new and existing employees. Alternative approaches include introducing flexible work arrangements—such as flexible scheduling or the option to telework—or implementing measures that increase the human capital of new employees. For example, firms may encourage new employees to participate in on-the-job training or to acquire micro-credentials. They may also provide tuition support for courses or programs. The degree to which Canadian employers expect labour shortage plans to implement specific measures more often than other employers is currently unknown and deserves an investigation.
In addition to increasing the wages and benefits of new and existing employees, businesses that expect labour shortages at the beginning of 2022 plan to implement several measures during that year to deal with personnel recruitment, retention and training. Their capacity to use specific strategies—such as offering telework or flexible scheduling—is not uniform and depends on the nature of the jobs they provide and the technological and budget constraints they face.
In line with the fact that businesses expecting labour shortages are far more likely to consider increasing the wages of new or existing employees in 2022, wage growth expected in 2022 is higher than expected in other companies. Lastly, recent Canadian evidence indicates that increases in real wages can potentially attract more youth to the labour market, alleviating some of the labour shortages that Canadian employers report experiencing.
Businesses expecting labour shortages in the short term are, on average, four percentage points more likely than other businesses to offer the option to work remotely over the next 12 months. However, the difference between the two groups of employers varies substantially across industries. In information and cultural industries, finance and insurance, and professional, scientific and technical services, establishments expecting labour shortages are 27 to 38 percentage points more likely to offer telework than other establishments. The corresponding difference amounts to five percentage points in sectors where most jobs cannot be done from home.
Sizable inter-industry differences are also observed regarding the offer of flexible scheduling. In information and cultural industries, finance and insurance, and professional, scientific and technical services, establishments expecting labour shortages are 28 to 41 percentage points more likely to offer flexible scheduling than other establishments. By contrast, the difference observed in manufacturing amounts to 9 percentage points. Part of the differences observed between manufacturing firms and employers in service industries might reflect the scheduling constraints manufacturing firms face when trying to optimize the use of machinery and equipment.