Since Canada’s return to pre-pandemic employment levels in November 2021, the labour market has added another 600,000-plus jobs. But employment in some industries still isn’t back to pre-pandemic levels. Why the uneven recovery?
The overall recovery in jobs was rapid, with total employment reaching 19,770,300 by December 2022 — 3.3 per cent above its pre-pandemic level (February 2020). But in five broad industries jobs are still down. These are: accommodation and food services, which is still 126,900 jobs short of its pre-pandemic employment; “other services” excluding public administration (52,700 short); business, building and other support services (48,500 short); agriculture (37,200 short) and transportation and warehousing (16,700 short). Last year these industries accounted for 19 per cent of total employment, down from 22 per cent in 2019.
What explains these employment lags?
Like most industries, in 2022 these five experienced elevated job vacancies and historically low unemployment rates. Is it just a question of not being able to find workers?
In four out of five cases, no. Using October 2022 data, the latest available, we calculate that even if employers had been able to fill all positions that were going vacant, only “business, building and other support services” would have been back to pre-pandemic employment levels. That job vacancies don’t seem to be the only reason for lagging employment doesn’t mean they aren’t real, however: in the second quarter of 2022, cooks, kitchen helpers and servers were among top 10 occupations with the largest annual increases in jobs that couldn’t be filled, affecting job creation and employment growth.
Lower labour force participation rates as a result of an aging population are one possible reason for labour shortages but other factors are also in play. Some workers who lost their jobs to pandemic shutdowns may have moved to industries less vulnerable to shutdown and job loss.
COVID-19 has also caused a significant increase in teleworking. The proportion of people working mostly from home increased from four per cent in 2016 to 32 per cent at the beginning of 2021. Although the share working exclusively from home had declined to 15.8 per cent by last December, the proportion of employees with a hybrid work arrangement had risen to 9.6 per cent. The main attraction of hybrid work is its greater flexibility. But it is obviously more difficult in industries that rely on personal interactions — especially accommodation and food — so it’s not surprising that’s the industry with the highest rate of job vacancy.
Shortages of key inputs because of supply-chain issues have also affected employment growth in industries such as agriculture and accommodation and food services. So have the sharp price increases resulting from these shortages. They both increase the cost of inputs and reduce consumers’ demand for the goods and services being produced. The negative impact of inflation can be significant. For example, while sales of food services and drinking places reached a record high of $7.4 billion in October — 14 per cent higher than in February 2020 — inflation-adjusted sales showed a revenue loss of $105 million over the same period.
Finally, pandemic-related shutdowns and health measures may have accelerated technological change in many sectors. Automation can help solve labour shortages, but by boosting output and productivity it can also lead to slower employment growth.
In the long run, however, productivity is key to alleviating shortages. For example, agriculture had a remarkable productivity increase (a 34.6 per cent rise in real GDP per hour worked) between February 2020 and October 2022. Although bumper crop conditions due to better weather played an important role in GDP gains, this could also be partly related to innovation. Despite a year-over-year reduction in overall capital expenditure of the agriculture industry in 2020, its investment in medium- and heavy-duty vehicles and industrial machinery and equipment increased.
Both the accommodation and food industry and “other services” excluding public administration, also had significant productivity gains (nine and 13 per cent, respectively), possibly due to some businesses moving away from labour-intensive to automated tasks.
Both governments and businesses need to be mindful that there are still more than one million unemployed persons in the Canadian labour market, part of which is likely the result of a mismatch between the skills people have and what businesses need.
The Canadian labour market was quite tight in 2022 and this tightness is expected to continue. To tackle their labour shortages, employers will need to look at a mix of improved working conditions, better compensation packages, productivity-enhancing investment and training of those workers they manage to hold on to.
Parisa Mahboubi is a senior policy analyst at the C. D. Howe Institute, where Tingting Zhang is a junior policy analyst.
Published in the Financial Post
