COVID-19: Labour shortage

When COVID-19 hit, unemployment rates were at 45-year lows, and complaints about the lack of labour weren’t just aimed at the skilled type. Firms were desperate for anyone of age that had a pulse. In my May 20 column, I delved into capacity constraints in Canada. We may have an even bigger headache as growth ramps up: Labour. While the pandemic temporarily loosened things up, tight conditions are back, and corporate complaints are mounting. Is it really as bad as it was? And could this cheat us out of imminent growth?

A quick glance at the unemployment rate might dispel fears. The pre-pandemic rate was pretty close to 5.5%, and the latest number is 8.1%. Looks like we have quite a bit of runway. Cynics might also cite the partial rebound as a reason to relax. After all, we’ve only recovered 83% of lost jobs; we still have a way to go just to get to the pre-COVID-19 level. Both statements are true—but they’re misleading.

Canada’s progress actually stacks up well against the experience in the United States. They boast a better unemployment rate, at 6.1%. However, this masks the hidden unemployed: Discouraged workers that have dropped out of the labour force. The U.S. has, in fact, only recovered 67% of jobs lost in the pandemic. They still have a way to go until they feel our pain. 

It’s bad enough that our labour markets are generally tightening. Look at the industry level, and things are a lot worse. The job count in professional, scientific, and technical services is currently at 106% of pre-pandemic levels, the hottest sector going. But there are others in the 100%+ club: The catch-all category for forestry, fishing, mining, and oil and gas is at 105% of pre-pandemic employment levels, followed closely by finance and insurance and utilities. Manufacturing is at 101%.

Drill further into the manufacturing sector, and it’s clear that some segments are a lot hotter than others. The forestry sector is very tight, with both wood products and paper not shedding as many workers initially and recouping quickly. For wood products, there’s pressure to keep up with homebuilding and renovations. For paper, it’s likely being pushed by the increased need for packaging, given the transformation in retailing.

Other hot employment zones include electrical equipment and appliances, food manufacturing, primary metals, chemicals, and motor vehicle parts. 

Is there any relief for these labour-squeezed sectors? There’s no immediate relief in sight on the immigration front, and educational remedies take too long. A more immediate solution might be found in technology, where mechanization substitutes for people that are in short supply. Companies that were already pursuing mechanized solutions are ahead of the game, as it takes time to get all the pieces in place.

Another solution is a reshuffling of labour from sectors that are having a harder time recovering. In manufacturing, sectors where unemployment is still high, include aerospace, clothing, the energy sector, and the printing industry. In the broader economy, the accommodation and food sector have by far the most displaced labour as employment is still just 70% of pre-pandemic levels. Information, culture, and recreation, also closely tied to tourism, is next in terms of employment woes. Similar conditions currently plague business services and transportation.

Poaching from other sectors is likely just a temporary fix. Success in managing the pandemic coupled with outsized stimulus will see the return of the more beleaguered sectors, and with it, a rush to re-employ. Some, in anticipation of this, may indeed be securing their talent already. 

The reality we all face is our weak demographics. This has been exacerbated during the pandemic by vastly lower immigration. Even as post-pandemic immigration resumes, our structural labour problem will persist, and we’ll be back to the list of remedies needed to solve the longer-standing issue. A short-term talent-grab may help, but we’ll all still ultimately depend on getting the longer-term formula right.

Tight labour conditions are again being felt in pockets of the economy. The race for skilled workers is on again, and specific sectors that are behind the curve may find their talent being picked off by the hot zones. That won’t last long; sectors long in the trench are set for a re-emergence that will ramp up their hiring quickly. Long-term solutions are still the best remedy for our structural labour issues, and a concerted effort is needed to ensure ample productive capacity for some time to come.