Canada’s Income Support Has Created A “Disincentive” To Work: National Bank

bird s eye view of city during daytime

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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  • Paul 3 years ago

    The one thing they seem to be missing is if the youth have left city because they can’t afford rent and had no income besides govt hand out and they’ve left.

    • Carolyn Goss 3 years ago

      So agree. The cost of rent and housing is precluding employment where there is work. Some employers are offering affordable staff accommodation as a means to secure workers.

    • Edward 3 years ago

      I agree. Service jobs and unskilled labour don’t earn enough to live in the city. Not everyone can live in their parents basement or has the desire to commute for three hours each way.

    • Kaliucla 3 years ago

      Came down here to make this exact comment. The government subsidies are now $300/week. I doubt that’s enough to wane people away from a 40hr work week even at $14.50/hr.

      I believe we’re seeing the initials signs of a brain drain in the major cities. All these youths moved back in with their parents in the burbs and they’re not going to trek 1.5 hours in traffic for an entry level job.

      • Lyle Hall 3 years ago

        I live in a rural area in Canada and we also cannot get unskilled labour. Construction and service industries are in huge demand due to the relocation of people from cities hundreds of kilometers away. We see the same “disincentives” keeping both new and past unskilled workers from seeking work despite a 30% increase in wages over minimum wage. Sitting at home, surfing the new internet, (provided by yet another government program for rural connectivity), is far more attractive.

  • Axel McLion 3 years ago

    I expect income supports will continue to be extended indefinitely. Would not bet on then ending this fall.

    • Carolyn Goss 3 years ago

      It needs to end. It is a disincentive to the nth degree. There are so many other ways to incentivize workers. Offering an affordable wage or bringing down the cost of housing are two ways.

      • Anthony van Engelen 3 years ago

        Isn’t that the point? Why should businesses be entitled to unskilled labour if they aren’t willing to pay more than income support programs? Income support should continue indefinitely, and this will force businesses to pay a living wage for unskilled labour.

        • backwardsevolution 3 years ago

          No, the government should stop artificially propping up the housing market, allowing interest rates to rise and prices to fall.

          And the government should stop deliberately trying to raise wages by incentivizing people (through income support programs) to stay out of the work force.

          When wages rise, that just means there’s more money out there chasing the same amount of goods, which then causes prices to rise. Pretty soon that raise you got doesn’t buy diddly-squat and you’re back at square one again – asking for more money.

          The government needs to stop their manipulating and let prices fall. They are destroying lives and destroying the country.

  • alex 3 years ago

    What creates a disincentive to work is having income grow at rates nominally slower than cost of living and people realizing they are just as worse off working as they are not working.

    • Joe B 3 years ago

      Agreed, people are simply unwilling to trade their personal time for working time if they don’t have to. As income support pulls back I suspect the labor shortage will follow suit.

  • H 3 years ago

    The article makes good points. Will tapering off the financial support also have an impact on the number of people who want to be vaccinated in order to work?

  • Eric 3 years ago

    I have what I thought was a great job making 75k per year. But now that I have failed over and over trying to buy a house in the past year in my small BC hometown, and subsequently have been priced out of anything with enough size to house my family I am looking at mobile homes and small apartments as my only option. It has me wondering why even work… I work so hard just to pay rent and just keep falling further and further behind. I’m considering going onto government benefits and income assisted housing. Believe it or not, it would actually be an increase in quality of life vs working a job that pays 75k. My living situation would be similar and I would have more time to spend with my 2 young children.

  • CG 3 years ago

    Totally agree re: the cost of housing combined with gov’t income supports being a disincentive for non-skilled labour to get back to work. I think Trudeau and company are testing a modified UBI and it shows it is NOT working. It was a stupid concept to begin with. Much better is any plan that incentivizes workers to go back to work wherein there is some support somewhere for productivity.

  • vnm 3 years ago

    The minimum wage was about $8/hr in 1990, it’s gone up about 80% to just over $14 in Ontario. Average rents have more than tripled in Toronto since then, as have subway tokens and most everything else. The minimum wage would need to be at least $25/hr to come close to when Toronto had already become borderline unaffordable.
    Supporting a class of subhuman leech investors has simply become untenantable.

  • Joe B 3 years ago

    What a broken system it is when so many people cannot afford to live in the very country they are required to pay taxes in.

    • Tom Wolfe 3 years ago

      Like virtually all of the people that work in the resorts we love so much?

      We are famous for leaving token tips – spare pocket change, sunglasses, probably clothing too.

      That’s the future of Canadians in Canada, accepting the cast offs of wealthy citizens from anywhere else, to survive.

  • Mary 3 years ago

    I’ve seen this argument several times now and I find it annoying. “People aren’t running back to work because of the generous benefits.” Or the moral hazard: “The masses are inherently lazy and they need to be kept one paycheque away from homelessness and starvation in order to keep working their shitty jobs”. It’s an excuse to perpetuate poverty, the most profitable business of all time. There are so many reasons why people aren’t running back to their unskilled jobs and I agree with the ones mentioned about housing and youth and falling behind. But I never see anyone talk about how a global pandemic is still raging. Who works most of these precarious unskilled jobs? women. Who does almost all of the unpaid/uncompensated care work of children/elders/medically fragile people? BINGO. I am in Ontario where the pandemic exposed the neglect and abuse occurring in Long Term Care homes. The provincial government revealed its back to school plan which is basically giving a bottle of lysol for each classroom with a big shoulder shrug. Children and many medically fragile people cannot be vaccinated! Mothers and wives and daughters are the first and last line of defense for their loved ones who seem to be forgotten and left behind during this pandemic. So women aren’t going back to their fantastic service jobs in restaurants and grocery stores and walmart because they’re terrified of exposing the people who depend on them to COVID. They literally no longer have the time with all the slack they’ve had to pick up. And many of them never qualified for or received CERB benefits anyways.

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