B.C.’s worsening labour shortage another consequence of COVID

To some degree the seemingly endless pandemic has contributed to now widespread labour shortages and hiring challenges.

It prompted some people to advance retirement plans. It led others to leave the workforce for family or personal reasons. Shutdowns and layoffs caused some workers to shift to other industries or switch occupations. But as the economy continues to recover, it is becoming evident that population aging and slower labour force growth are the main structural forces affecting the job market. Extrapolating labour force and employment growth trends that were in place prior to 2020 suggests that labour scarcity will intensify and to some degree constrain economic growth in 2022 and beyond.

Since the start of the pandemic economists have carefully tracked the jobs recovery process. In aggregate, B.C. had regained the jobs lost during the 2020 shutdown by early 2021 – and was the first province to do so. Considering the magnitude of the job losses in the late winter and spring of 2020, this was a notable milestone. But a more complete assessment of labour market conditions and the employment recovery should also consider the job growth that would have occurred had the province’s economy not gone into recession in 2020.

If the underlying upward trend in employment that prevailed between January 2011 and February 2020 had not been interrupted, total employment in B.C. would now be around 2.77 million. But at the end of 2021, actual employment stood at 2.7 million, 70,000 below where it would have been had the employment growth trend continued.

Above-average job growth will be required for several years if B.C.’s job market is to heal more fully and if the province is to regain jobs lost in the downturn as well as those that would have been added if employment had continued to grow at the pre-pandemic pace. But this is a very unlikely scenario, for several reasons.

Of most significance is the fact that the supply side of the job market has mostly recovered. Labour force growth has slowed in recent years. If B.C.’s labour force had kept expanding at the trend rate that prevailed in the decade prior to COVID, it would be 35,000 larger than it is today.

The shortfall is due to a slightly lower female participation rate. The full “normalization” of female participation would provide about half the extra workers necessary to close the remaining 70,000-job-employment shortfall.

Expanding the labour force beyond this 35,000 residual gap, however, would mean pushing the unemployment rate lower and/or encouraging more people to join or stay in the workforce, something that will be exceedingly difficult to do as an ever-increasing share of the adult population retires.

Another reason to believe labour supply will constrain future economic growth is that the already low unemployment rate suggests the pool of available workers is small compared with the number of anticipated job vacancies.

In 2015, when Statistics Canada first started tracking job vacancies, B.C. reported approximately 70,000 open positions. At the same time, there were about 160,000 unemployed people living in the province. This equated to 2.2 British Columbians looking for work for every job opening, as of late 2015. At the end of 2021, B.C. had 165,000 reported job vacancies, which roughly matched the number of unemployed – one unemployed person for every reported vacancy. The small pool of unemployed workers relative to the quantum of openings makes skill matching harder and means employee turnover has become a bigger risk for many businesses. B.C. stands out as the only province where reported openings and the number of unemployed are roughly equal. Nationally the ratio is 1.5 unemployed persons for every vacant job.

Having to confront another round of restrictions and closures, rising input costs, supply chain disruptions and substantially higher labour costs, many businesses are barely viable. In this environment, higher wages stemming from underlying labour scarcity can be expected to depress job growth. Wage pressures in B.C. were apparent prior to the pandemic and have intensified since late 2020. The average offered wage across all job openings surged by 10% in the past two years. Since 2015, the average offered wage in B.C. has gone from 4% below the national average to 4% above it. In fact, our province now has the highest average offered wage in the country.

The good news is higher wages should attract more workers from other jurisdictions and lift disposable household incomes over time. The bad news – for employers – is that finding and keeping qualified staff is going to get progressively harder. •

Jock Finlayson is the Business Council of British Columbia’s senior policy adviser; Ken Peacock is the council’s senior vice-president and chief economist.