Labour market mismatch could lead to increased unemployment: CIBC

Some jobs seeing labour surplus, others experiencing skills shortage
||Last Updated: 12/03/2012

Canada's job market shows a growing divide between have and have-not occupations, according to a new report from CIBC.

"On one hand, jobs go unfilled for long stretches due to a lack of skilled applicants," said CIBC deputy chief economist Benjamin Tal. "In fact, the prime minister recently described skills shortages in the Canadian labour market as 'the biggest challenge our country faces'.

"But on the other end of the labour market spectrum, there is growing evidence that the size of the labour surplus pool is also on the rise. For a number of occupations, employment opportunities are increasingly disappearing. This labour market mismatch is big enough not only to reduce the effectiveness of monetary policy, but also to limit the growth potential of the labour market and the economy as a whole."

In his analysis, Tal found that traditional occupations like butchers, bakers, tailors, labourers in manufacturing, office managers and clerks are showing signs of labour surplus, along with secondary and elementary school teachers.

He found that the occupations with signs of skills shortages include many positions in traditional health-care roles, such as doctors, nurses and dentists. The health-care list also includes optometrists, chiropractors, pharmacists, dietitians and nutritionists. Mining, engineering and science occupations are also facing skill shortages.

Skill shortages

No less than 30 per cent of businesses indicate that they face a skilled labour shortage, which is double the rate seen in early 2010.

"The recent acceleration in that ratio has coincided with a stagnating employment rate — loosely illustrating the negative impact of skill shortages on employment growth," said Tal. "What's more, while you will not see it in the relatively stable trajectory of the unemployment rate, the number of job vacancies reported by firms has risen by close to 16 per cent over the past year — bringing the vacancy-to-unemployment ratio to its highest level since Statistics Canada started publishing vacancy information. It is hardly a surprise that the highest vacancy rate is in Alberta, followed by Saskatchewan."

Tal identified 25 job groups that have shown signs of consistent skill shortages. By far, the largest skill shortage was found in health-related occupations, the mining industry, advanced manufacturing and business services. Put together, those occupations account for 21 per cent of total employment in Canada.

"One-fifth of the Canadian labour market is currently showing signs of skilled labour shortage," said Tal. "The average unemployment rate of this pool of occupations is just over one per cent and their wages are now rising by an average annual rate of 3.9 per cent — more than double the rate seen in the economy as a whole.”

Overall employment in this group is rising by 2.1 per cent, he said.

Labour surplus

At the opposite end of the labour spectrum, Tal identified 20 occupations that were in a surplus category as demonstrated by higher/rising unemployment rate and decelerating wage growth. These jobs account for 16 per cent of total unemployment in Canada while their real wage growth was nil over the past year. Excluding this pool of unemployed, the national unemployment rate would have been almost 1.3 percentage points lower.

The average duration of unemployment in Canada currently stands at 16 weeks, which is five weeks above the prerecession level. There are currently 250,000 Canadians who have been unemployed for over six months — 18 per cent of total unemployment in Canada.

"Clearly the larger this measure is, the more serious are the policy and economic implications of a given unemployment rate," said Tal. "Longer term unemployment was on a clear downward trend over the past two years, but its current rate is still notably higher than its long-term average. That is mostly the case among Canadians over the age of 45, suggesting that retraining must be an integral part of any solution.

"The practical implication of the growing job market mismatch in the Canadian economy is that this measure of long-term unemployment is more likely to start rising from its already elevated level,” said Tal.

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