Why labour shortages are 'plaguing' employers

Times are especially tough for small and medium-sized businesses in Canada, with two new studies showing just how concerning the situation is.

These organizations are facing serious labour crunches which are impeding their growth, according to the C.D. Howe Institute, as 63% reported difficulty finding enough suitable workers.

“We looked at several reports, and employers, some of them were saying that they didn’t even receive any applications when they advertise the jobs. The problem was no qualified applicants but for some of them, there were no applications [received],” says Parisa Mahboubi, senior policy analyst at the C.D. Howe Institute in Toronto.

This disparity is leading to lower growth and puts smaller organizations at a competitive disadvantage when it comes to various human resources options to keep workers retained, says Mahboubi.

“There are several factors: it could be related to a lack of labour with the right skills, or the right experience; it could be just lack of labour.”

The organization released its most recent commentary, entitled Empty Seats: Why Labour Shortages Plague Small and Medium-Sized Businesses and What to Do About It.

Wage mismatch in labour market

One of the biggest items noted is a “wage mismatch” in the labour market, according to Mahboubi, one of the report’s authors, along with Tingting Zhang, junior policy analyst.

“Basically, it’s the difference between what employers expected to be offered, on average, and what the sector offered for vacant job position. So obviously, when those in the labour market are looking for employment, if they are not able to find a job that actually meets their minimum expectation of wage or salary, they’re not going to apply.”

Because they are having trouble hiring employees, small and medium-sized operations are also experiencing historically high shortages.

“In November 2023, about 53% of Canadian small business owners reported that labour shortages are hindering the growth of their business so we can see a declining trend — but labour shortages are still exceeding the historical average. It’s less acute than before but labour shortages are still there,” says Laure-Anna Bomal, economist with the Canadian Federation of Independent Business (CFIB) in Montreal.

“In 2022, it was in the mid-60s but if we compare with the historical average, since November 2013, so the past 10 years, it’s about 50% and right now, we’re at 53. It’s still a bit higher than the historical average,” says Bomal.

The CFIB also released a report showing the extent of the problems faced and the cost to these companies.

“The first one is a turn-down in sales or contracts, and it affected about 27% of them — and 17% had to postpone the timing of existing contracts,” says Bomal, who wrote the CFIB study.

For the trucking industry, the number of jobs that need to be filled is more than 20,000, according to another report.

Working longer hours

Besides the financial impacts, some companies are reporting they are adjusting their own work schedules to meet the challenges of lack of labour.

“Owners had to work more hours to make up for the shortages — it’s about 53% of them. Then we know that 38% of owners mentioned that their employees are working more hours,” says Bomal.

This problem was most acutely realized in the hospitality sector, says Mahboubi.

“We actually witnessed some of the restaurants, for example, they didn’t offer services every night or at extended times, compared to pre-pandemic; they had to reduce hours or they had to reduce the number of days or they had to reduce in terms of orders. They couldn’t take any orders that were available to them and it impacted, of course, the revenue and benefits.

“Some of them, they had to also work longer… or ask their staff to work longer hours to be able to adjust for the lack of labour,” says Mahboubi.

Bringing back previously employed workers who have left could help some businesses cope with labour shortages.

How labour shortages can be addressed

While these problems seem difficult to resolve, a number of solutions were raised by C.D. Howe.

“In terms of attracting and retaining, wage and salary is one part of that but there are other things that employers can offer to make position attractive: flexible work options, especially remote work if it’s possible, it’s quite attractive,” says Mahboubi.

This practice would help smaller employers greatly, she says, and its borne out by government numbers.

“A Statistics Canada survey has shown, and different surveys are showing, that workers, if there are for example, two options available — one with remote work or flexible hours and one without — that they prefer the flexible hours or remote work even at the lowest salary, to have some type of flexibility.

“That’s really important to consider when employers are thinking even for the job that remote work is not available. Offering flexible hours, giving options to be flexible and accommodating potential workers or existing staff would be really helpful in terms of attracting and retaining the workforce.”

As well, smaller organizations could deploy more automation for some routine jobs, she says.

“When it comes to adopting that, it might be an upfront cost in the beginning, but I’m hearing that some of those that adopted technology and use automation, they get benefits from that, and they were able to increase the revenue… and the recommendation of the paper is that also there is a role for government to help small businesses to be able to adopt automation.”

“There are some challenges in terms of adopting but absolutely after that, there’s benefits to a small businesses, and they can increase the revenue and benefit from that,” says Mahboubi.