In Quebec, an aging population isn’t theoretical anymore.
There’s a labour market shortage in Quebec, or at least reports of a shortage are appearing regularly in the local media. Employers are complaining that they can’t find workers to fill vacant posts, and for what it’s worth, I’m seeing a lot of notices at various establishments here in Quebec City announcing that workers are in urgent demand.
This is, it need hardly be said, a startling development for a province that has spent decades struggling with chronically high unemployment. Until about 10 years ago, Quebec unemployment rates were typically one or two percentage points higher than they were in the rest of Canada; now they are about half a percentage point lower.
Part of this convergence can be explained by the recession: the Quebec economy was less exposed to the global financial crisis relative to provinces such as Ontario, so its unemployment rate increased less than it did in the rest of Canada. But the story over the past five years is one of population aging.
For most Canadians, population aging is a problem for the medium term: something to take into account when making projections, but not yet an immediate concern. But for the provinces east of the Ottawa River, it is a stern and present reality: the working-age population has been declining since 2012.
But a contraction of supply is not the same thing as a labour shortage — just like an expansion of supply is not the same thing as a labour surplus. Economists don’t identify shortages or surpluses based on quantities alone; they are contingent on prices. A shortage occurs if, for a given price, demand exceeds supply. Extreme circumstances apart — natural disasters, for example — shortages aren’t problems that need government intervention if the market is functioning properly. Prices are driven up, attracting more supply and reducing demand to the point where everyone who wants to buy at the (higher) price can do so.
That said, it’s worth digging a bit deeper here because the labour market operates differently than the market for ( say) cauliflower. The standard stories of market adjustments don’t always apply when talking about employment. Keynes’ fundamental insight — and the reason why macroeconomics is a separate subfield of economics — is based on the observation that nominal wages are — as jargon has it — “downwardly rigid”: they adjust very slowly or not at all when the demand for labour does. If the wage stays the same, then so will the supply of labour, even as hiring falls off. This creates an excess supply ( or surplus) of labour — otherwise known as unemployment. If wages were downwardly flexible, then unemployment wouldn’t be a problem. ( The problem would instead be the decline in wages and incomes.)
There’s a strong case to be made for doing something about unemployment, because the usual market mechanism for absorbing a labour surplus — a wage reduction — isn’t available. However, there doesn’t seem to be an analogous argument for labour shortages: higher wages should ( eventually) solve labour shortages.
Offering workers higher pay in order to address a labour shortage is a strategy that appears to have largely escaped the attention of employers in Quebec. Wages in Quebec have always been lower than the Canadian average, and the labour “shortage” doesn’t seem to have changed things much. To be sure, the wage gap has narrowed, but only slightly. Ten years ago, median and average weekly earnings in Quebec were just under 90 per cent of those in Ontario; now, a typical Quebec worker earns just over 90 per cent of her Ontario counterpart.
Not only are Quebec wages too low to attract workers from other provinces, they appear to be too low to even retain the ones that are already here. There have been some important changes in patterns of interprovincial migration in recent years — more people are now leaving Alberta than are moving there — but Quebec continues to lose working-age people to other provinces.
Of course, Quebec is still a highwage economy by global standards: what about immigration from outside Canada? It’s not clear that expanded immigration is much of a solution to Quebec’s labour shortage: the immigrants who are already here have more difficulty finding work than they do in other provinces. For example, unemployment rates for the Canadian- born labour force in Quebec and in Ontario are virtually identical: 4.7 and 4.6 per cent, respectively. But the unemployment rate for immigrants in Quebec is 8.7 per cent, as opposed to 5.9 per cent in Ontario. And for immigrants who landed in the last five years, the unemployment rate is 13 per cent in Quebec and 9.4 per cent in Ontario. Everyone in Quebec talks about making it easier for immigrants to have their credentials recognized here and about the importance of integrating newcomers into the labour force, but nothing ever seems to happen.
For generations, policy makers in Quebec and in the rest of Canada were preoccupied with the problem of finding jobs for a labour force that — due to a combination of demographics and an increase in women’s participation rates — was growing much faster than the population. In such an environment, it made some sort of sense to erect barriers to prevent outsiders from taking jobs from insiders, and to entrench a business culture that depends on keeping wages low.
Clearly, this is no longer the world we live in. And it is equally clear that even though Quebec’s population aging problem was accurately predicted long ago, Quebec has yet to make the transition to making decisions based on the new demographics. The lesson for Canadians on the other side of the Ottawa River is this: knowing that population aging is coming is not the same as being prepared for it.
WORKING-AGE POPULATION HAS BEEN DECLINING SINCE 2012.