Even as the world debates whether or not we’re in a recession, a persistent shortage of workers is forcing business leaders and economists to struggle to understand one of Canada’s most intractable economic problems, and some say the most crucial.
Despite the slowing effect of rising interest rates intended to combat soaring prices, employers across the country continue to complain that they cannot find workers to fill job vacancies. And while many expect job creation in Canada to end soon as the recession bites, forecasts from Friday’s latest jobs report suggest that has yet to happen.
When the jobs figures were released at 8.30am, they showed the economy had lost 31,000 jobs in July, leaving the jobless rate unchanged at 4.9%.
According to economic theory, a solution to the labor shortage is in order: just invest in technology and figure out how to alleviate production problems to increase profits without increasing the number of employees.
A productivity challenge
While the theory may seem simple, making it work in the real world is a huge challenge for businesses, governments and economists trying to make Canadians more productive. And it’s not just a Canadian problem.
Last week, one of the world’s most influential business leaders, Google boss Sundar Pichai, told employees that parent company Alphabet was launching a plan called “Simplicity sprint“, to increase economic productivity.
The announcement is already raising concerns that policy hints at upcoming layoffs, and not just at Google, where earnings growth has slowed. But economists insist that increasing productivity is not about laying off or making every employee work harder.
According to lots of online books and articlesProductivity is all about becoming a better person by getting organized so you can get more done in your busy life and stop all that wasting time. But that’s not how economists define it, according to Audra Bowlus, an economics professor at Western University who studies Canadian productivity.
“We can think of labor productivity as a kind of value added per worker,” Bowlus said.
As Bowlus and others describe it, the reason productivity is so important is that it is the foundation of national wealth and well-being. It also makes sole proprietorships more profitable. In a collective sense, increased productivity makes us wealthier as a country and allows average wages to rise.
Don’t rush the workers
Experts note that a real increase in economic productivity should occur without employees working longer hours or struggling with the increased stress of doing more with less. As we have seen in industries where this has been tried, such as emergency rooms in Canada, the burnout that causes people to quit their jobs does not lead to long-term effectiveness.
As Bowlus explained, increasing productivity should be understood as increasing output without increasing inputs. The idea is to do things more efficiently, by buying or inventing cheaper machines to make work easier, or by creating procedures that require fewer laborious steps.
“It may be that machines are becoming more productive through technology,” Bowlus said. “It can also be that workers become more productive through more education or improving their skills or simply being able to work better with these machines.”
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But that doesn’t mean jobs aren’t lost in the process, said Michael Veall, an economist at McMaster University who leads a team of researchers and works with Statistics Canada to boost Canadian productivity.
Veall points to jobs such as ice cream man or elevator operator, occupations eliminated by technological progress such as the invention of electricity and refrigeration, or the shift from the human skill of making stop the elevators at the correct level to match the floor to the automated push buttons. .
Veall, who once held one of the last elevator operator jobs in Canada — he pressed buttons and gave a spiel at the Skylon Tower in Niagara Falls — says economists wonder if things like self-checkouts at the grocery store should be seen as labor replacement or real productivity enhancement.
Beware of the productivity gap
But that dispute is overshadowed by a much bigger debate about why Canada’s progress in productivity has been so weak compared to similar countries around the world. Statistics Canada data showed that after an extraordinary record leap in 2020 caused by the pandemicproductivity fell sharply in 2021, and continued to fall at the start of this yeardown from pre-pandemic levels.
Part of Veall’s project is to find a way to distribute previously difficult-to-access business data to Canadian economists so they can try to understand where the productivity and efficiency of many federal and provincial programs aimed at increase the efficiency of employers. Until now, much of the research has relied on foreign data.
Many analyzes denounces the gap between Canada and the United States, suggesting that Canada should follow the lead of the United States in tax policy and regulation. Some experts argue that Canadian tax laws designed to encourage small businesses have the opposite effect of discouraging businesses from becoming larger, using economies of scale to become more productive. Others worry increased productivity will lead to a decrease in other Canadian benefits that will contribute to a lower quality of life.
But Robert Gagné, director of the Center for Productivity and Prosperity at the École des Hautes Etudes Commerciales at the Université de Montréal, takes a fresh look by comparing productivity gains in North America to those in Europe, where programs benefits, taxes and regulations often exceed those in Canada.
“In Western Europe they have big productivity gains, even bigger than in the United States, much bigger in fact than the United States over the last 25 or 30 years,” Gagné said.
Gagne and his team attribute the difference almost entirely to the competition. While businesses in Paris must compete with businesses in Berlin, Canada’s relatively sparse population in a thin line just over the US border means a business in Quebec can virtually ignore a competitor nearly 4,000 kilometers away. Calgary, he said.
Productivity requires competition: expert
Research from the HEC center shows that while Europe is doing everything possible to encourage competition, Canada and its provinces are doing the opposite, “with a culture of protecting Canadian companies no matter what,” Gagné said.
He points to the near-monopoly power of Air Canada, which he says has too much influence over governments of all stripes in Ottawa. For example, Gagné suggests that the relationship repeatedly blocked a high-speed rail link between Quebec and Ontario, which would have given the Canadian airline a run for its money.
Instead, he said policy makers should instead look to Canadian companies like Couche Tard (which operates many locations under the Circle K name) which have no problem competing and leading the way on the World Scene.
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Gagné agrees that the well-known shortage of workers in places like Quebec’s Eastern Townships should motivate companies to increase productivity by investing in better machinery and methods. He said that in the service sector, which currently suffers from severe labor shortages, it is more difficult.
“You can’t replace a cleaner in a hotel room with a robot,” Gagné said.
And rather than expecting individual companies to lead the way, he said he thinks governments, especially provincial governments, should step up competition between provinces. Gagne said that’s what provincial leaders should be doing when they meet instead of just discussing how they can get more tax money from the federal government.
“I think they should start a discussion about trade barriers and people inside the country,” Gagné said. “There is more mobility and fewer barriers to trade between European countries than between Canadian provinces.”
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