If policy allows, the market will fill all those job vacancies

 Canadian employers recently reported that they are increasingly unable to find  workers who fill their needs. This condition is reflected in the official statistics, which show that between the first and second quarter of this year, the average number of job vacancies rose from 553,480 to 731,905. As of July, the number had grown to a record 815,800. Employers most affected by problems hiring workers are restaurants, retailers, trucking companies (as in the U.K.), and health-care providers.

Some employers have responded to the shortage by abandoning expansion plans or going out of business. Others report having raised wages. These and other responses to the high rate of job vacancies have serious implications for inflation, the rate of recovery from the recession and monetary, fiscal, social, and immigration policy, so it is important to understand why job vacancies are so high.  

One possible reason is that Canada suffers from an overall shortage of labor because more workers have retired than have entered the work force, while immigrants have added to it in smaller than usual numbers.

The facts do not support this view. In August, 1.521 million Canadians were unemployed, which was about 400,000 above the 1.176 million in August 2019, when the economy was at full employment and no labour shortages existed. Canada is not suffering from a shortage of workers available for employment.

Another possible reason is a mismatch of workers’ qualifications and wage expectations with employers’ requirements and ability to pay. This problem exists at all times and is caused by changes in technology, consumer tastes and overall growth in the labor force and output. It is routinely dealt with by workers acquiring new skills, moving to different locations, and modifying their pay demands, while at the same time employers train workers, adjust pay and working conditions and install labor-saving capital.

It is unlikely that the degree of mismatch has recently increased by enough to explain the current record number of job vacancies. No substantial changes in the mix of output or production technology have taken place. Employers are making the usual efforts to find workers. For example, salaries increased 2.6 per cent in 2021 and employers report planned increases in 2022 that are greater than in the preceding five years. 

A third explanation for high job vacancies is that workers fear COVID infections in the workplace and have therefore changed their occupational preferences. This seems to be a key problem for restaurants, healthcare and related service industries where close contact with potentially infected customers is high, workers consider pay to be too low, and work times are inconvenient, variable, and stressful.

But workers can afford to remain unemployed only if they have income to pay for their living expenses while they try to find the jobs they want. Since the start of the pandemic such income has reached them through substantial increases in the generosity of Employment Insurance (EI) benefits and the Canadian Recovery Benefits (CERB) program.

Ottawa recently reduced the level of these transfers and changed the conditions for receiving them so as to bring them more in line with pre-pandemic practice. Workers now must: have been employed an increased number of hours to receive EI benefits; wait one week before receiving approved benefits; submit a medical certificate to receive EI sickness benefits; face a minimum of weekly EI benefits of  $300, down from the pandemic level of $500; see their benefits again determined by regional unemployment rates (which lowers benefits for workers in regions with low rates); and face reductions in EI benefits if they receive CERB payments.

The response to past changes in EI benefits suggests that these reductions will lower the number of unemployed workers and unfilled jobs. It remains to be seen how quickly this happens, especially since the cash payment of $500 available to all Canadians through the CERB program earlier this year will continue to enable some workers to search longer for better jobs. But experience shows that reducing the income available to those who are unemployed invariably increases the number of people in work. The pandemic hasn’t changed that basic economic rule.

The article has been published in the Financial Post on October 5

https://financialpost.com/opinion/herbert-grubel-if-policy-lets-it-the-market-will-fill-all-those-job-vacancies