By Philip Cross, August 5, 2022
Statistics Canada recently studied the strategies being deployed by employers to cope with the growing scarcity of labour. Using results from the Canadian Survey on Business Conditions, analyst René Morissette was able to identify those businesses that say labour shortages are expected to be an obstacle to their growth in the short term and then examine their response. The results show the recent pick-up of wage increases is likely to continue, increasing the chances of a wage-price spiral that would further lift inflation above the Bank of Canada’s two per cent target.
The results show 38 per cent of private-sector businesses expect labour shortages to be an obstacle in 2022. Most firms plan wage hikes to address the problem. Firms experiencing labour shortages expect to raise wages by 6.1 per cent in 2022, compared with 3.6 per cent for other businesses. Shortages skew wage increases more to new hires than tenured employees: 46 per cent of firms facing shortages plan to increase the wages of new employees, four times as many as firms not experiencing shortages, while 64 per cent will raise wages of existing employees, twice the share for firms without shortages. Firms also plan to offer increased benefits and bonuses to new and existing employees though not nearly to the same degree as higher wages.
Most firms rely less on alternate strategies such as more flexible work arrangements or investing in the human capital of employees to cope with labour shortages. This may reflect either employers’ resistance to remote work because it is not feasible (work in construction, retailing and restaurants usually cannot be phoned in) or their belief such arrangements are not as attractive to employees as higher wages. Only a small share of firms plan to invest in the human capital of their workforce as a strategy to cope with shortages, mostly via training done within the firm.