New TD report discounts the skills mismatch in Canada

I recently came across the phrase “skills shortage deniers.” I can’t find the exact reference now, but it was in an online comment to an article about the supposed skills shortage, or skills mismatch, in Canada.

You’ve likely heard some of the numbers. The Conference Board of Canada claimed that Ontario alone was losing out on as much as $24.3 billion in economic activity because employers cannot find people with the skills they need. The Canadian Manufacturers and Exporters estimated that, by 2016, Canada will have 1.3 million jobs sitting vacant because there is no one with the skills to fill them. The Canadian Chamber of Commerce, for its part, referred to a growing skills “crisis” and even the Prime Minister called the skills shortage one of Canada’s most pressing economic problems.

I have been skeptical about these reports of a widespread skills shortage, so I guess you can count me among the deniers. I think there are multiple agendas at play from Canadian companies who would stand to benefit from government programs aimed at “correcting” this problem, absolving the companies of the responsibility of training their own employees.

I’m evidently not the only one who’s skeptical: a new report by TD Economics suggests that concerns over a skills shortage in Canada are overstated. (Interestingly, another Toronto-Dominion alumnus – TD’s former chief economist Don Drummond – also recently questioned the skills shortage.) The new report throws “cold water” (the authors’ words) on predictions of large and persistent job shortages in Canada. It also questions the view that today’s youth will be a “lost generation,” adding that the career prospects of recent graduates – including those with liberal arts degrees – are “likely better” than many Canadians believe.

That last item is of particular relevance to universities, as it counters the narrative in the recent CIBC World Markets report which suggested that the university “premium” is falling because too few students are taking programs that are “in high demand.”

“Evidence of economy-wide shortages is hard to find,” said TD’s deputy chief economist Derek Burleton, one of the authors of the new report, as quoted by Canadian Press. “Yes, across regions and occupations, skills mismatches (exist) because you are never going to get a perfect match. So it’s not a complete myth, but it’s not as extreme as people believe.”

The TD economists are not the only ones to refute the perception of a labour shortage. A paper published this past May by the University of Calgary’s Kevin McQuillan, entitled “All the workers we need: Debunking Canada’s labour-shortage fallacy,” concluded that Canada is not facing a wide-scale labour shortage “and is unlikely to confront one in the foreseeable future.”

To test for labour shortages and skills mismatch in the current report, the TD economists compiled data on unemployment rates, wage rates and vacancy rates (a measure of unmet labour demand) for around 140 occupations. They found that occupations widely thought to be in shortage – such as trades, engineers and health care workers – have recorded considerably lower unemployment rates than average, but vacancy rates that are only moderately higher. They also found that wage gains – a good measure of tightness in the labour market – have not increased to the extent one might have thought if the skills gap were indeed at crisis proportions. The report also noted that Canada’s job creation performance over the past decade has been strong, especially compared to other G7 countries

The TD report does flag several areas of concern in the labour market. It notes, for instance, that there has been a degree of labour market “polarization” in Canada, which refers to rapidly‐growing demand for high‐ and low‐skilled employment at the expense of a relative decline in medium‐skilled jobs. It also notes that the challenges of youth in the job market have intensified since the onset of the recession and that there has been an upward trend of temporary jobs in the economy, fuelling concerns surrounding the quality of jobs being created.

On the education front, the report observes that educators “have recognized some of the shortcomings of the current higher education system, including a lack of flexibility in altering programs to quickly meet the changing demands of the marketplace.” But there are signs that change is beginning to happen, including an increase in credit transfers among universities and colleges, and a rise in apprenticeship demand (although completion rates remain a challenge).

The bottom line: “Despite Canada’s solid track record in creating jobs, there are inherent vulnerabilities in the labour market and skills development more specifically that are holding back the economy’s potential. Bold and complementary action across governments, employers, employees and educators is needed to ensure that living standards continue to grow.”