Despite what seems to be supply side issues of staff
shortages, rising demand and inflation in the wake of the pandemic, at least
one contrarian view is that Canada’s labour shortage is an illusion. University
of Waterloo economist Mikal Skuterud in a recent Globe
Oped noted that despite perceptions of a labour shortage, Canadian labour
force participation was identical to what it was in October 2018 at 65.7
percent and the absolute size of the labour force at 20.8 million is the
largest it has ever been. The “shortage”
may indeed also be a result of the demand for workers in the post pandemic
surge growing faster than their numbers. Indeed, if one looks at the health sector, the supply of physicians and nurses per capita is the largest it has ever been but the post pandemic surge in dealing with postponed surgeries and procedures has been overwhelming.
However, the problem may be worse than you might
think. Not only is the size of the labour
force the largest is has ever been but so is total employment. If you look at the number of people employed –
producing labour units so to speak - it is three percent higher than it was in
2019. Employment did plunge in 2020 as a
result of the pandemic shutdowns but it has since rebounded dramatically – by over
9 percent since 2020. As the
accompanying figure illustrates, employment is indeed the highest it has ever
been. [Data Sources: Statistics Canada, Table 14100393 Labour force characteristics, annual and
| V62471340 Canada
[11124]; Gross domestic product at market prices] |
However, despite more people
working than ever before, the output response has been shall we say a bit
sluggish? While employment grew by over
9 percent from 2020 to 2022 as pandemic recovery set in, real GDP (in $2012
constant dollars) grew by less than 9 percent.
As a result, output per employed person has actually declined since
2020. From 2020 to 2022 real GDP per employed
person actually fell by just over one third of one percent.
Something has happened over the course of the pandemic that
seems to have affected the productivity of Canadian workers. Perhaps the long shutdown resulted in a
deterioration of human capital and skills?
Perhaps the retirement of so many experienced workers and their
replacement by less experienced entry level workers has led to output
disruptions as new workers learn by doing?
Or, after the trauma of the pandemic, everyone wants
more work life balance and as a result we are simply not working as hard as we
used to? Is this simply the aggregate
effects of “quiet quitting?”
Such slowdowns in output per employed person are not unique
to the pandemic era and based on the chart have occurred before – for example
during the Great Recession and also between 2014 and 2016. History suggests that we do recover from these
“productivity” slumps and based on past performance one would expect the same
over the next couple of years. The
disruption of the pandemic will take a number of years to fully work its way
through the economy and the social fabric of the country. The bigger problem in terms of productivity
is if this time things are going to be different, and the productivity
slowdown becomes a permanent feature.
Given that Canada has had economic productivity issues for decades, this
latest iteration of an old issue is disconcerting to say the least.
