Canadian Labour Shortages

By Huw Lloyd-Ellis, Queen’s University

Over the past year or so, most Canadians have experienced situations that appear to be associated with shortages of labour in various sectors of the economy. Whether they’ve been unable to obtain certain goods and services, have observed construction projects sitting idle or, most recently, have lost their luggage while travelling through Pearson airport, many experiences point to significant problems in the labour market. These issues are not unique to Canada, however, and similar trends are being observed in several other OECD countries (especially the USA, the UK and Australia).  

Measuring Labour Shortages

While we all have anecdotes and there is ample discussion of the issue in the media, it is useful to have quantitative measures of labour shortages. This allows us to gauge more clearly (1) how significant these shortages are, (2) in what industries they are most acute and (3) the variation that has occurred over time. Understanding these features is essential for determining the underlying causes of labour shortages and therefore the likely role of policy in mitigating them. A labour shortage essentially means that employers have jobs that they want to fill but there are relatively few workers who are looking to take those jobs. Economists therefore typically measure the extent of such a shortage using “market tightness”: the ratio of the vacancy rate to the unemployment rate.[1] While unemployment rates across industries are commonly available via Statistics Canada’s Labour Force Survey (LFS), measures of vacancy rates that are comparable across industries and over time have only been available relatively recently through their Job Vacancy and Wage Survey (JVWS).

Here I make use of quarterly estimates of vacancy rates which are available from Statistics Canada since the first quarter of 2015. Both vacancy rates and unemployment rates can exhibit a fair amount of seasonality, especially in certain industries. Moreover, the “normal” level market tightness can vary across industries reflecting the specific nature of their labour markets. For these reasons, I focus on market tightness in each industry from 2019 onwards relative to the 4-year average for that quarter during 2015-18. Consequently, a relative market tightness (RMT) value exceeding 1 implies more acute labour shortages relative to 2015-18. Data on vacancies for the second and third quarters of 2020 are unavailable due to some Statistics Canada operations being suspended during that period.

How significant is the Canadian labour shortage?

Figure 1 documents the average RMT score for all industries from 2019 to the first quarter of 2022.[2] While the data for the middle of 2020 is unavailable, we can guess that it fell dramatically during the lockdowns of the second quarter before rising again in the second quarter. This is because the unemployment rate spiked upwards while the vacancy rate declined. More importantly for the question at hand, we can see that market tightness grew dramatically from the end of 2020 until 2022. The Canada-wide RMT score has essentially doubled relative to 2019 indicating a dramatic increase in labour shortages on average during 2021-22.

In which industries is the labour shortage most acute?

Unemployment and vacancy rate data is also available by 18 major industries. Figure 2 (over) shows how the RMT score has evolved for 12 of these industries where it exceeds 2 by the end of the sample. Table 1 ranks all industries in order of their most recent RMT score. As may be seen, the oil and mining sectors, the construction sector and professional, scientific, and technical services have all reached market tightness close to 4 times that experienced during 2015-2018. These sectors are therefore experiencing the most acute labour shortages compared to normal times. However, significant labour shortages (RMT close to 3) are also observed in manufacturing, real estate, finance and utilities. Accommodation and food services, retail trade, health services, and transportation and warehousing are experiencing labour shortages but to a lesser extent (RMT close to 2). Interestingly, the implied labour shortage in accommodation and food services appears to have lessened by 2022, after being particularly acute last summer.

To what extent does the labour shortage pre-date the pandemic?

While the apparent rebound in demand following the lockdowns of 2020 and early 2021 (combined with rising oil prices) has dramatically exacerbated the Canadian labour shortage, Figures 1 and 2 also document that on average and in many industries the labour market was already tight in 2019 relative to previous years. This is indicated by a RMT value consistently exceeding 1 on average and in most industries. Again, this is a phenomenon that is not restricted to Canada but characterizes several other OECD countries and therefore likely reflects common factors affecting multiple countries.[3]

Table 1: Canadian Industrial sectors ranked by most recent RMT score.

Industrial SectorRMT Score 2022:Q1
Mining, quarrying, and oil and gas extraction4.17
Professional, scientific, and technical services3.82
Wholesale trade3.36
Real estate and rental and leasing3.06
Finance and insurance2.88
Retail trade2.51
Other services2.36
All industries2.34
Accommodation and food services2.30
Transportation and warehousing2.30
Health care and social assistance2.29
Business, building and other support services2.09
Educational services1.76
Public administration1.63
Information, culture, and recreation1.44
Agriculture, forestry, fishing and hunting1.18

What is the cause of rising Canadian labour shortages?

Researchers and policy analysts in various countries have identified several possible explanations for this phenomenon that might be associated with the pandemic. However, it is not clear whether these can account for what is happening in Canada. For example:

  • The withdrawal of women and seniors from the labour market (due to fears of contagion, health issues and inadequate childcare facilities) who have not yet returned. While there is empirical evidence of this in the US, the data for Canada and other countries is not supportive.
  • There has been a rising “quit rate” or “great resignation”. This may reflect cyclical factors since tighter labour markets tend to result in greater job mobility. However, it may also reflect structural factors resulting from the pandemic: workers (especially those on the front line) are no longer willing to accept jobs characterized by low pay and poor working conditions. Again, while there is evidence of this in certain industries in the US, the proportion of Canadian workers who quit their jobs in 2021 was not significantly greater than in 2019.

As noted above, the dramatic increase in market tightness in 2021-22 is in large part a result of the rebound in demand. Countries, including Canada and the US, that provided generous government support to replace lost income during the pandemic have experienced relatively strong subsequent rebounds (and high inflation). However, there are also underlying longer-term labour shortages that predate the pandemic: the RMT was already well above 1 in 2019. One likely contributing factor is the aging of the workforce and the retirement of the baby-boom generation. This workforce transition has only just started and, if anything, is likely to have accelerated during the pandemic. The labour shortfall due to the ongoing retirement of skilled and experience workers will remain a significant factor in key industries for some time to come. As competition for the remaining workers heats up, it is likely to result in wage increases and further inflationary pressure.

Policy Implications

To the extent that the increase in market tightness is cyclical, there are several “standard” policy approaches that could help to relieve short-term labour shortages. On the supply-side, these include technological improvements that increase the efficiency with which job vacancies can be matched with available workers, assistance and retraining to enable current non-participants to enter or re-enter the workforce and assistance with the cost of re-location. Ultimately, however, this economy-wide increase in market tightness will be mostly reduced via a contraction in demand. Macroeconomic policies that are tightening both monetary and fiscal stimuli are already under way. It is hoped that these can counteract an overheated economy without causing a recession.

In the long run, however, structural labour shortages can only be relieved by either discouraging retirement of skilled and experienced workers or replacing them in some way. Increased automation may play a role in this regard, although it is inherently difficult to substitute for the many workers who conduct non-routine activities. For a country like Canada, a major source of skilled and experience workers could come from immigration. We already have ambitious targets in this regard, but achieving these goals is currently being undermined by application processing times that themselves appear to be exacerbated by labour shortages!

[1] The vacancy rate is the fraction of jobs openings that are currently unfilled. The unemployment rate is the fraction of those available to work who are currently looking for a job.

[2] This is the most recent quarter currently available from the JVWS.

[3] See “The Post-COVID-19 rise in labour shortages,” OECD Economics Department Working Papers No. 1721. (

Huw Lloyd-Ellis, PhD, is a Professor in the Department of Economics at Queen’s University. He has also led efforts to model the impact of COVID-19 on Canadian labour markets over the past several years. He is the sector lead for studying the labour market and macroeconomic impacts of COVID for NSERC’s One Society Network, and led the development of Limestone Analytics’ STUDIO model that was applied to projects for Canada’s Digital Technology Supercluster, Global Canada’s COVID Strategic Choices Group, and for customized policy analysis in Canada, Rwanda, and Malawi.

With high inflation, Ontario’s Bill 124 will make the healthcare worker shortage even worse

By Senthujan Senkaiahliyan, Queen’s University Smith School of Business

As Ontario begins to slowly enter a post COVID-19 world, we see priorities shifting from the health system to other avenues. Although on paper, COVID-19 may seem manageable, it remains a significant burden to our health system with a reported 0.4 hospitalization rate this past month. (Public Health Ontario, COVID-19 Data Tool)
As health systems shift priorities to resilience, research has begun to take place into assessing our current health workforce to help manage and better protect it from further shocks. However, as we fight one war, another one emerges and that is the increasing inflation within our province and nation. Statistics Canada recently reported that annual inflation rate has jumped to 7.7% in May, which is the fastest it has increased since 1983.

In our previous article, we highlighted how Bill 124 has effectively capped healthcare workers from compensation increases to 1% annually. This moderation period is to last for three years with some employer groups ending their moderation period in 2024. It was projected that due to these caps and increased workloads, we will see nurses leaving the bedside in favour of care-coordination or administrative roles that are less taxing mentally and physically. The currently released Health workforce Crisis report by the Canadian Nurses Association has confirmed that projection in which they highlighted that all three stages of the nursing profession (early, mid, and senior) have been critically impacted by the pandemic.

With inflation reaching almost 8% as of this month (and expected to be a lot higher by the end of the year) and nurses only receiving a 1% adjusted wage for this fiscal year, they are facing what amounts to more than an estimated 7% pay cut in our current economic situation. These effective reductions in salary for nurses and other healthcare workers send out a clear message that this is no longer a sufficiently compensated or valued profession. As certain industries are attempting to offset inflation by promising increases and bonuses to employees, Bill 124 bars hospital management from properly compensating their nurses for their services.

So, what does this mean? Already, the Ontario Nurses’ Association has noticed a “mass exodus” of nurses leaving the bedside but now with inflation we will see them leave the profession entirely. The clinical skills that nurses possess are highly valued in other industries, noticeably the technology sector. Clinical Informatics has been massively growing and mid to senior-level nurses have been utilizing their skills to build and serve growing IT infrastructure among healthcare practices. Another growing field is clinical research, in which nurses often can wear multiple hats such as coordinating studies as well performing many of the clinical duties required in clinical trials. Previously we reported a skills gap for entry-level nurses as they move towards care coordination and vaccination centre roles where they do not receive adequate bedside training but in a post-COVID world, we will see a training gap in which mid and senior level nurses who are often the backbones of preceptor training leaving their roles to pursue other avenues in which they are fairly compensated for their time and skills.

Among the public, healthcare workers have been hailed as heroes and many young students look at nursing as a career that is respected and a contribution to societal good. The Canadian Nurses Association has seen a rise in young people applying to nursing schools, but this trend has not translated into an increase in nursing school class sizes. With the lack of experienced nurses in the field, it will be very hard to support an increase in clinical placements to help support these new graduates. Without adequate clinical training, we can very well see many nurses graduating from school without establishing the core critical competencies.

We must look to innovative solutions to combat this national nursing shortage crisis. Pre-pandemic policies and health systems have been proven to be ineffective when faced with external shocks. To truly build resilience in our future healthcare system, an evaluation of all policies, including Bill 124 must be immediately conducted to ascertain if the short-term savings in health workforce dollars will translate into the long-term of effects of an inefficient and poorly staffed healthcare system.

Senkaiahliyan was a masters student in the Smith School of Business at Queen’s University. Image from Shutterstock.

Unintended consequences of Bill 124’s public sector wage restrictions during COVID-19

By Senthujan Senkaiahliyan, Smith School of Business at Queen’s
with Christopher Cotton, Queen’s Economics Department and School of Medicine

As the government and society works to address the challenges of COVID-19 pandemic’s Omicron wave, there has been a lot of discussion around the capacity of the healthcare system to deal with the increased number of cases. Much of the public discussion around these issues have focused on well recognized contributing factors such as vaccine hesitancy and the emergence of increasingly-contagious variants. However, there are many other less-discussed factors that have reduced the capacity of the healthcare system to deal with COVID.

Some of Ontario’s policies have contributed to reduced healthcare capacity in this time of crisis. Bill 124 is one of the measures enacted by the Ontario Government to limit wage increases in the public sector. What was first introduced as a fiscally responsible management plan to protect the sustainability of public services has, however, impacted the ability of the health system to respond to staffing shortages and capacity needs during the COVID-19 pandemic.

Bill 124 applies to most organizations under the public sector, including most provincial healthcare institutions. It effectively limits salary and wages increases for public sector workers including healthcare workers. An excerpt from Bill 124 (Article 10 (I)):

“No collective agreement or arbitration award may provide for an increase in a salary rate applicable to a position or class of positions during the applicable moderation period that is greater than one per cent for each 12-month period of the moderation period, but they may provide for increases that are lower.”

This effectively caps annual pay increases to 1%, substantially below Ontario’s annual rate of inflation, which was estimated at 4.9% this past October. This cap is in place for the moderation period of three years starting in 2019.

This legislation means that real wages for healthcare professionals are falling even as the demands of the job and workload are increasing. It is little wonder why Ontario has seen a rising shortage of nurses and other healthcare workers, which some experts have predicted will be `beyond anything we have ever experienced‘ and which likely contributes to the inability of the system to keep up with need.

The labour market constraints have contributed to a mass exodus of nurses either leaving the profession or utilizing their clinical skills in non-bedside roles. The bill was introduced prior to the onset of the pandemic and claims to be investing in a sustainable Ontario however we can see through this graph, that Ontario is well on its way to a severe nursing crisis exacerbated by this bill.

Sustainable health care is the appropriate balance between the cultural, social, and economic environments designed to meet the health and health care needs of individuals and the population without compromising the outcomes and ability of future generations to meet their own health and health care needs. Under Bill 124, the marked increases for the next three years are highlighted for nurses.

Newly graduate nurses are the most inclined to take on bedside roles due to their willingness to get direct patient experience. However, with these wage forecasts for the next three years and no discrepancy in pay between patient facing and non-patient facing roles, new graduates will choose the less burdensome route, which is what we are witnessing in Ontario with new graduates being employed at vaccination centres and in care coordination roles. With every passing year, we will begin to witness a skills gap in which these nurses will not be equipped with the right clinical skills to take on bedside care. Without direct action, such as incentivizing bedside care, prioritizing nursing mental health, and providing adequate support, Ontario is heading towards a very unsustainable healthcare future. 

Senthujan Senkaiahliyan is an MBA and Masters in Artificial Intelligence candidate in the Smith School of Business at Queen’s. He has worked in the healthcare sector since 2017. Christopher Cotton is a Professor at Queen’s with appointments in the Department of Economics, the School of Policy Studies, and the School of Medicine. He has worked on COVID-19 policy since 2020.

Featured photo: Dr. Annalisa Silvestri during the Covid-19 pandemic, 2020. Creative common license, source

The Canadian Government’s pandemic transfers have been generous, but let’s not exaggerate

By Huw Lloyd-Ellis, Queen’s University

In the Globe and Mail’s Report on Business (December 2, 2020), Patrick Brethour suggests that the increase in Ottawa’s transfers to private-sector households during the pandemic so far amounted to $7 for every $1 of income lost.

To calculate this number, the article compares the change in government transfers to the change in primary household income between the first and third quarters of 2020. However, these values from Statistics Canada represent quarterly flows, not stocks, meaning that such an analysis misses the employment losses and transfers in the second quarter, when both values were at their highest levels.

Read More »

The Economic Costs of COVID-19 for Ontario: How bad is it so far and how bad could it get?

By Huw Lloyd Ellis, Queen’s University

Huw Lloyd Ellis is a Professor of Economics at Queen’s University. Here, he discusses the new STUDIO model developed by Queen’s University economists and Limestone Analytics for assessing the impact of COVID-19.

We all know it’s bad. COVID-19 and the lockdowns needed to counter it have created a global economic storm whose impact on Ontario since mid March has been more disruptive than any downturn that most of us have seen in our lifetimes. We’ve seen large downturns in the level of employment. A large fraction of those still employed are working from home and many of those still employed were working reduced hours.

Understanding the economic costs in terms of lost production from these adjustments is important for many reasons. Firstly, these costs translate into major losses in household incomes that may never be recouped. These losses are far from equally distributed and depend crucially on where people live and the industries in which they work. Secondly, the resulting loss in the tax base adds an additional strain on government finances over and above those created by increased spending to offset the size and impacts of layoffs and business distress. The ongoing losses in production today represent a permanent loss in economic wealth that will impact our future after-tax incomes for many years.

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The electoral origin of government spending shocks

By Raphaelle G. Coulombe, Queen’s University

The ratio of government expenditure to output fluctuated considerably after WW2. As shown in Figure 1, many countries experienced rapid decreases or increases in the share of central government expenditure in output at different points in time. For example, there were instances of sharp decreases in Canada, Italy, and Denmark since the mid-1990s, while the United States and United Kingdom experienced the opposite trend over that same time period.

Figure 1: Ratio of central government expenditure to output
Figure 1: Ratio of central government expenditure to output
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Shutdown policy ignores economic consequences in order to minimize Covid-19 infections at any cost

By Christopher Cotton

Christopher Cotton, Ph.D., is a Professor of Economics at Queen’s University, where he holds the Jarislowsky-Deutsch Chair in Economic & Financial Policy and is the Director for the John Deutsch Institute for the Study of Economic Policy.

Before deciding whether we should start to reopen the economy, we need to understand what it is that we are trying to accomplish through the shutdown. If the shutdown is intended to slow the spread of COVID-19 and prevent our health care system from being overwhelmed, then we have room to start slowly loosening shutdown restrictions today. If, however, our objective is to minimize the number of Canadians that become infected or die from the disease, which seems to be the objective of public health officials today, then the shutdown may need to continue indefinitely.   Read More »

Monetary policy and the term structure of inflation expectations

By James McNeil, Queen’s University

The nominal interest rate can be decomposed into the sum of the real interest rate and expected inflation through an economic relationship called the Fisher equation. While monetary policy typically works by adjusting short-run nominal interest rates, economic theory suggests that it is the real interest rate that influences borrowing and lending decisions. How much of an adjustment to the nominal interest rate passes through to affect the real interest rate – and hence the real economy – will depend on the response of inflation expectations.

Furthermore, central banks may wish to directly influence inflation expectations to avoid falling into a liquidity trap or to achieve additional stimulus when nominal interest rates are exceptionally low. In 2009 the Federal Reserve lowered its policy interest rate to zero, which is considered to be the lower limit, effectively losing its main policy tool. In response, it turned to unconventional monetary policy operations such as forward guidance (promising to keep interest rates low for an extended period of time) and large-scale asset purchase programs (often referred to as Quantitative Easing). If these unconventional policies are able to directly move inflation expectations when short-run nominal interest rates are constrained then the Federal Reserve would have the means to affect real interest rates when its preferred policy tool is not available.Read More »

Dear Florida, Can NY borrow some ventilators? The U.S. needs better coordination of medical equipment across states

By Christopher Cotton and Neil Renwick

Christopher Cotton, Ph.D., is a Professor of Economics at Queen’s University where he holds the Jarislowsky-Deutsch Chair of Economic & Financial Policy and is the Director of the John Deutsch Institute for the Study of Economic Policy. Neil Renwick M.D., Ph.D, is a Clinician Scientist and Head of the Laboratory of Translational RNA Biology at Queen’s University and an Associate Attending Physician at The Rockefeller University Hospital in New York City. 

Last week, NY Governor Andrew Cuomo issued a plea to the rest of the country: “Help New York. We’re the ones hit right now… We need relief. We need relief for nurses working 12-hour shifts. We need relief for doctors. Help us now and we will return the favor.”

This request is based on the fact that states like New York, New Jersey, and Michigan are being hit hardest by the COVID-19 pandemic now, and are likely to see their apex in the next week or two, while other states are unlikely to reach their peak until later this spring. Today, as New York faces a shortage of health care workers, there are other places in the U.S. with excess medical capacity, where doctors and nurses not yet being pushed beyond their breaking point.

We claim such an argument not only applies to doctors and nurses but also applies to life-saving ventilators as well.Read More »

We Hit the Brakes. So, What Now?

By Thorsten Koeppl

Thor Koeppl is a Professor of Economics and RBC Fellow at Queen’s University. He also serves as a Scholar and member of the National Council and Monetary Policy Council at the CD Howe Institute. 

Imagine you are driving your car on an alpine road.  You see some rocks starting to fall, a rockslide!  What do you do? Slam on the brakes.  Stop.  You take a deep breath and, after a sigh of relief that you kind of dodged it, you think: So, what’s next? How do I get past that rock slide?

This is where we are at in Canada in our response to the current CoVid-19 pandemic.  We brought the economy pretty much to a full stop.  It is fair to say that this reaction will likely save Canadians being fully engulfed in the rock slide.  We yet do not know how big the benefit will be in terms of lives saved or how large the costs will be on the economic side, but we did the right thing.  Act on the side of caution and hit the brakes.

Soon, hopefully, there comes the time to catch a breath and look forward to see how we can navigate the medium-run fall out from the pandemic.  And this is where economists and the way they tend to think can help us a lot.  After all, economists are “social engineers” that deal with problems where individual behaviour needs to be steered in the right direction to achieve better outcomes for society.Read More »