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  • Writer's pictureSteven Tobin

A recession is a terrible thing to waste

Two years ago, during a pandemic-induced recession, the unemployment rate was in double-digits and nearly three million workers lost their jobs.

Labour and skill shortages have reached a critical point

Yet for the job market, it seems like ages ago. Canada’s job numbers have bounced back, and with national unemployment rates hovering at all-time lows, we are suddenly confronted (again) with labour and skills shortages.

The inability of employers to find workers with the right skills to fill record-high vacancies is dampening Canada’s economic growth and competitiveness. It also affects health care access and contributes to inflationary pressure, disrupting supply chains and, more broadly, limiting our ability to make headway in raising living standards and in transitioning to a lower carbon economy. These developments are a not-so-friendly reminder that a well-functioning job market is sine qua non for economic, social and environmental progress.

Yet, don't be fooled by headline job numbers

There’s a deeper story behind the labour shortage headlines you might have seen as of late; there are, in fact, still plenty of potential workers in Canada. For instance, data from June showed there are still about 185,000 unemployed workers who have been without work for six months or more. This duration risks their soon joining the ranks of other discouraged workers who have left the workforce entirely.

While it would appear that part of the solution simply lies in hiring this untapped pool of people, the group includes long-term unemployed individuals as well as other vulnerable groups who face a variety of challenges in finding work. Some have to uproot themselves and their families to relocate to job-rich areas. In other cases, those available and willing to work may not have the right skills for the jobs on offer.

Once labour and skill shortages rear their ugly heads, it’s almost too late to do anything. They require a quick response in order to increase the supply of labour with the required skills – but workforce investments of this nature take time and, because of skill losses during unemployment, the longer people go without working the more challenging and costly these programs become.

Of course, hindsight is 20/20, but we keep making the same mistake over and over. During economic downturns, such as the one at the start of the pandemic, governments have focused too narrowly on income support when, in addition, they should also use these periods as opportunities to make the right investments in people and skills.

Opportunity costs of (re)training are lower during periods of labour slack

There is no better time to do this than during a recession, when the cost of training an unemployed worker is low compared with having a worker take time off for formal training in prosperous times. Making such investments when labour markets are tight renders them overdue, more expensive and more difficult to execute.

Instead of being constantly caught off-guard by labour shortages, we must first deliberately commit to making sustained investments in skills and training, especially for vulnerable groups such as low-income, low-education workers, as well as the long-term unemployed. An approach that narrowly emphasizes one dimension, such as income loss, will inevitably fail. Investments in skills and training, if set in motion early, can be scaled up when the next downturn takes place. In this way, we can be proactive so that future unemployed individuals do not become long-term unemployed – or worse, leave the job market entirely. We can ensure a greater return on our investment in people.

Immigration is a central to a human capital strategy but programs need to urgently embed skills as part of the selection criteria

Second, immigration must continue to play an important and complementary role. However, our current workforce-immigration strategy focuses too narrowly on education and professional qualifications. The world of work has shifted dramatically, and while qualifications still matter, our immigration policies need to embed selection criteria that reflect the important role that certain skills now play in Canada’s job market. Canada has been increasingly reliant on temporary immigration to address shortages. There is a risk that this could discourage employers from providing training to workers and investing in the workforce.

Closer co-operation between governments, businesses and training institutions would ensure individuals learn needed skills that that businesses are able to access the domestic and international talent they require to prosper.

Let’s be proactive with our skills and training programs and make a concerted effort to address what the labour market needs. Only then can we take a meaningful step toward achieving our economic, environmental and social objectives.

A recession is a terrible thing to waste. Let’s not make the same mistake again.

Steven Tobin and Parisa Mahboubi.

Parisa is a senior policy analyst at the C.D. Howe Institute. The views expressed here are those of the authors.

An earlier version of this blog is available as an Intelligence Memo at the C.D. Howe Institute.

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