Salary hikes on the way amid acute shortages
The “mismatch” between Canada’s labour demand and supply is hitting the most pandemic-impacted sectors particularly hard, a phenomenon that TD Bank Group experts say is likely to push wage growth higher in those sectors.
Even as the domestic unemployment rate remains well above its pre-pandemic level (currently sitting at 6.9 per cent, up from 5.6 per cent pre-crisis), Canadian employers’ demand for workers has risen faster than their ability to hire them, leading to a 4.8 per cent vacancy rate in July, when the most recent Statistics Canada data was available.
That job vacancy number is significant, TD economists Sri Thanabalasingam, Uthman Adepoju and James Marple wrote in a Wednesday note. “Based on the relationship between job vacancies and unemployment that existed prior to the pandemic, the job vacancy rate in July would be consistent with an unemployment rate roughly half of what it is today.”
It’s become more difficult to match up current unemployed workers with available jobs, the authors wrote, due to factors including health concerns, the reliability of childcare, occupation-switching — particularly among workers in pandemic-affected sectors — and an increase in the long-term unemployed.
Wage growth has stayed relatively subdued, even as concerns of labour shortages have reached a fever pitch, but “faced with staffing shortages, firms may be left with little choice but to increase pay to attract new workers,” they said.
“The reallocative nature
Wage growth has stayed relatively subdued, even as concerns of labour shortages have reached a fever pitch, but faced with staffing shortages, firms may be left with little choice but to increase pay to attract new workers.
of this economic shock is already evident in stubbornly high long-term unemployment that will make it more difficult to fill positions in rebounding industries,” according to the TD economists. “This development — combined with a strong cyclical labour market recovery — is likely to increase the bargaining power of workers and put upward pressure on wages in the quarter ahead.”
The accommodations and food services sector is making an “outsized contribution” to market imbalances, the TD economists wrote. That’s followed by the business, building and other supports sector and the finance and insurance industry, which has seen significant labour demand growth thanks to real estate and financial market activity in the pandemic, but may be suffering from a shortage of available workers with the right skillsets.
Thirteen of the 18 sectors Statistics Canada measures — representing 75 per cent of total employment in Canada — had a gap between labour demand and supply of only around one percentage point, the TD economists wrote.
Despite this, 10 sectors saw labour demand grow faster than supply between May and July this year, amid provincial economic reopenings.
Unemployed workers, particularly the long-term unemployed, filling available postings could ease labour shortages in the near-term, the authors wrote, but career changes, skill deterioration or mismatch with market demands could prolong the tight labour market, adding to wage growth pressures.