The Canadian economy is slowly recovering, but the unemployment rate is still elevated. Somehow small businesses are unable to find unskilled labor, even as wages rip higher. National Bank Canada (NBC) deputy chief economist Matthieu Arseneau attributes this to generous income support. In the bank’s opinion, the support has created a “disincentive” to work.
Canadian Businesses Are Unable To Find Unskilled Labor
The Canadian Federation of Independent Business (CFIB) monthly survey found a big shortage of unskilled labor. About 30% of small businesses were unable to find unskilled labor. A shortage this large hasn’t been seen since October 2018. It doesn’t seem like all that long ago, but it was a different economic environment.
Labor Shortages Typically Occur With Much Lower Unemployment
Shortages of unskilled labor usually only occur during periods of very low unemployment. In October 2018, the unemployment rate was just 5.9%. It was an extremely tight market. Last month the unemployment rate was 7.5%, almost 2 points higher. According to the bank, only 15% of businesses were unable to find unskilled labor at the time. Twice the rate of businesses can’t find labor, even though unemployment is elevated.
Source: National Bank of Canada.
Canadian Businesses To See Labor Shortage Ease As Income Support Disappears
Part of the issue is a mismatch of the labor skill set and job vacancies. “It’s true that part of the reason for this anomaly may be some mismatch between the type of jobs offered by companies and the profile of workers on the sidelines,” he said.
Though that doesn’t entirely explain the issue, since these are unskilled jobs. NBC believes the pandemic’s lingering income support is what’s holding people back. “In our view, the generosity of income support programs has been a disincentive to return to work,” wrote the economist.
The bank sees the unskilled labor shortage ending in the not-so-distant future. By the end of August, some of the income supports will begin to taper. Most programs theoretically will come to an end in November. When this occurs, they see the share of job vacancies falling.
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