Canadian employers are making jobs faster than people can fill them. In two separate reports, BMO economists took a dive into rising job vacancies and wages in Q2 2021. They found job vacancies hit a new record high last quarter. A lack of labor doesn’t appear to have much urgency though, as wages are still only showing modest growth.
Canadian Job Vacancies Soar To A New Record High
Job vacancies continue to climb, reaching the highest level on record. Statistics Canada (Stat Can) reported 731,900 job vacancies in Q2 2021. No data was recorded last year due to the pandemic, but vacancies are 25.8% higher than Q2 2019. About 4.6% of jobs across the country are currently vacant.
The gaps are due to the pandemic, but perhaps not the parts you might expect. Economists have attributed the issue to “disincentives” created by generous government unemployment benefits. BMO sees an additional reason — a rising demand for goods. Stimulus and low interest rates are driving consumption, pushing the need for labor.
Canadian Job Vacancy Rate
Source: Statistics Canada; Haver Analytics; BMO.
“Ultimately, if fiscal policy is stimulating even more demand, it will be pushing up against tight supply. The valve is usually wages and prices, not more economic output,” said the bank’s senior economist Robert Kavcic.
Vacant Jobs Have Only Seen A Modest Uptick To The Wages Offered
Soaring job vacancies are producing only a modest increase to wages. In a second note, BMO economist Erik Johnson points to the 3.6% annualized wage growth for Q2 2021. It may sound high to some, but it doesn’t even rival the 4.1% reported for CPI. A shortage of labor typically leads to higher real wages, not just a modest pay bump. It’s a little odd to see a labor shortage with wages that fail to keep up with inflation.
Canadian Average Vacancy Wage Growth By Industry
Source: BMO Economics; Statistics Canada.
Making the situation worse — the wage gains aren’t evenly distributed. You might be an industry beating inflation, or you might not. Hard hit information and cultural industries have seen up to 8.4% increases in wages. “However, wages don’t appear to be rising as sharply in many sectors with acute labor shortages: accommodation and food services, retail and wholesale trade, transportation and warehousing, and manufacturing,” he said.
Job vacancies are soaring, but wage growth is failing to launch at a similar trajectory. It might not be a long-term issue to worry about, at least at a macro level. If the same stimulus-driven demand pushing inflation fades as central banks expect, vacancies fall. That would relieve pressure on wages as well as the need for higher output.
National Bank argues a similar (but different) solution to high job vacancies will appear around November. As government unemployment benefits fade, they expect people to fill more vacancies. The benefits currently give households more options, stacking wage growth in their favor. If the benefits are removed, the wage negotiation slants back to the employer’s favor.
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