Supply of workers drying up fast

Employment participation at record levels but it won’t last long as workforce ages

Human resource professionals might be a little spooked about the year 2011.

According to often-cited Statistics Canada figures, three years from now employers will wake up and find labour force growth is entirely dependant on new immigrants. That’s because, by 2011, the first wave of Canada’s massive baby boomer cohort (people born between 1946 and 1964) will start turning 65 and retiring en masse.

Shortly thereafter, there will be more workers leaving the workforce than those entering it, says Laurent Martel, a population analyst at the demography division of Statistics Canada in Ottawa.

The government body ran four different workforce scenarios based on the current population rates and, even assuming high employment participation rates from retirees and immigrants, came to the same conclusion — the labour force as a percentage of the population is going to decline. Currently, Canada’s labour force represents 70 per cent of Canada’s total population.

“We can expect decreases over the next three decades, regardless of scenarios, in overall participation rate so that the labour force will reach 63 per cent of the total population in 2031,” says Martel.

Labour growth rate set to plummet

Even predicting an average annual labour growth rate of between 0.1 per cent (worst scenario) and 0.8 per cent (best scenario) from 2005 to 2031, the growth in the labour force still will be less than the 1.5 percent observed from 1980 and 2005.

“This reflects boomers reaching retirement age,” according to Labour Force Projections for Canada, 2006-2031, a paper co-authored by Martel for Statistics Canada. “As a result, between 2011 and 2015, the annual growth rates in the labour force will fall by at least 50 per cent under all scenarios.”

What does this mean for employers? There won’t be a sudden crisis or labour shortage come 2011 as is often assumed, says Pedro Antunes, director of the national and provincial forecast division at the Conference Board of Canada in Ottawa.

“You can’t really have a lack of employees,” he says. “You have to make the most of the employees available to you and so, in that way, the economy adjusts. This issue is not a short-term one but a medium- to long-term issue.”

Antunes adds there is widespread consensus in the government and the Bank of Canada that the Canadian labour market is already at a turning point.

“For the past 25 years, we have been used to having an excess supply of labour. Now, on an aggregate, national scale, there is an excess demand for labour,” he says. “A key indicator of this is the low unemployment rate (5.9 per cent in December).”

From 2002 to 2007, the national employment growth rate averaged two per cent. By 2010, predicts Antunes, the employment growth rate will drop to an average one per cent per year.

“There will be restrained growth moving forward. And it is a huge issue. I ask people if they’ve thought about their hiring or business plan slowing down half pace in the next five years, and I don’t think a lot of people have,” he says.

Productivity, not hiring, will drive growth

Martel says companies will need to recognize and prepare for the fact future economic growth in Canada will be more reliant on productivity gains rather than employment gains.

“For the past 25 years, the main driver of gross domestic product (GDP) growth has been employment gains. To sustain economic growth, we’ll have to get a lot more out of each worker,” he says.

At Human Resources and Social Development Canada in Ottawa, Cliff Halliwell, director general of policy research, points out that, overall, Canada can’t anticipate the GDP growth rate will remain as high as it has been.

Western Canada a bellwether

Employers need only look to Western Canada for a taste of what lies ahead, according to Jason Clemens, a resident scholar at the Fraser Institute in Vancouver.

“Employers are not able to fill job postings, and they are having trouble with expansion plans,” says Clemens

Most experts point out that, despite the prediction of a shrinking national labour force, different sectors will be hit accordingly. (For more information on which sectors are feeling the pinch, see related article below.) Similarly, provinces will experience different levels of shortages, according to Martel. Ontario, Alberta and British Columbia will see a larger labour force in 2031 than in 2005. In contrast, Newfoundland and Labrador, Nova Scotia, New Brunswick and Saskatchewan are predicted to have a smaller labour force in 2031 than in 2005. (Still, overall participation rates will fall in all provinces.)

Increases in participation rates of older people in Canada (through postponing or phased retirement) could delay, by a few years, the decline in overall participation rates, says Martel. He suggests there is a window of opportunity in 2011 to take advantage of an historically high — albeit short-lived — participation rate for several years to help prepare for the big drop.

Immigration’s role

Experts disagree over the role immigration can play in offsetting the labour force shortage. Antunes says there were 250,000 new immigrants in 2007, and that number is expected to grow.

“If anything, people challenge whether we have the ability to absorb and the facilities to train all these people,” he says.

Clemens says while he believes immigration can “benefit and be used to mitigate some of the problems, the current system is not geared to get the most from those new arrivals in terms of workforce participations.”

3 steps to take

Clemens offers three suggestions for employers facing a new economy, where productivity is pivotal. First, companies will need to be a lot more creative and innovative at retaining the good workers they already have.

“This will make HR exceedingly important in sectors that experience the worst shortages,” he says.

Second, employers will need to be a lot more creative about getting more people into the labour force.

“The easiest example I can think of is the Aboriginal communities in Canada, which have high unemployment rates. It’s one of the last pockets in Canada where labour is not being used,” says Clemens.

Third, businesses are going to have to make better use of technology.

“Without workers available to meet their needs, they’ll just have to figure out how to get the most out of what they have,” says Clemens.

Lesley Young is a Newmarket, Ont.-based freelance writer.

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