Wednesday, March 20, 2013

How do we Solve our Skills Shortage? Take Natural Medicine.

Located near Tanzania and Kenya is the great Serengeti, which is marked by an annual cycle of circular rain patterns. The rain moves around a patch of 150,000 miles of land forcing 1.5 million wildebeest and zebra to follow, in what is called the Great Migration. Whatever land becomes touched by the rain becomes lush and fruitful, and wherever the rain leaves becomes barren and desert-like. Grazers are forced to follow the rain on this 1,200 mile trek, while predators- territorial in nature- lies in waiting for the return of the cycle.

In other words, wildebeest and zebra move to where the food is; while lions sedentarily lie and wait. Because of the length of the wait, some lions do not survive.

Canada’s skills shortage is in vogue. But, this topic often invokes emotions ranging from disbelief to rejection to anger. There is a disbelief that, in a still struggling economy, that labour is in short supply. There is a rejection of, while so many can’t find jobs, companies’ push to bringing in foreign workers. And, there is anger that, with all the money pouring into training, government has not addressed the problem.

Does Canada face a labour shortage? Maybe. But, it really depends on where you look. Canada's overall unemployment rate is still 7.0 per cent, which means that there is a decent amount of people still looking unsuccessfully for work. 

Does Canada face a skills mismatch? Likely. There is growing evidence that people are not getting the right education and training due, in part, to the lack of available information.

But, does Canada face a labour allocation problem? Most definitely. While the resource-rich Western provinces' economies are booming and the old economies of the East are stagnating; however, labour is stubbornly slow to move. This creates a surplus of labour in Eastern provinces while Western provinces are struggling to fill positions with employees. Saskatchewan is forecasting a shortage of 120,000 workers by 2020 and Alberta, 114,000 by 2021. With insufficient labour and floored unemployment rates, employers are forced to increase wages to attract new talent.

Unemployment Rates and Average Hourly Wages of 
Trades, transport and equipment operators and related occupations by Province, 2012

This dynamic has caused a gulf between the wages and unemployment rates in the East versus the West. In other words, not only are people more likely to get a job in the Western provinces than in Eastern provinces but the jobs would also be higher paying. Yet, a great migration is not occuring.

In 2009, around 260,000 people moved across provinces – out of a country of 34 million. That’s three-quarters of one per cent of the population. This pales in comparison to Australia, a country that is strikingly similar to our own, where nearly 360,000 moved across state borders. With a significantly smaller population of 22 million, over 1.6 per cent of the population moved – more than doubling Canada’s rate.

Net Interprovincial Migration
Migration as a % of total Population

Net interstate migration
Migration as a % of total Population

Despite the employment opportunities in the West, people have not adequately migrated to exploit them. The rain is falling on Western provinces but instead of moving to capture the lush and fruitful opportunities, too many choose to remain waiting for the rain to return. Canada faces a labour allocation problem.

Moving, though, is difficult to ask of people. Firstly, moving is highly costly. Kathleen Day and Stanley Winer discovered in a study in 2005 that moving costs represent, by far, the largest barrier towards interprovincial migration. Despite the federal government providing an income tax deduction for moving expenses, the costs of moving are still very costly.

Additionally, most humans have evolved from their nomadic lifestyles with the establishment of settlements. We have developed social bonds, culture and language – all of which are reasonable barriers to moving. But, these benefits must be balanced by individuals with the cost passing of up better opportunities.

The cost shouldn’t only include individual cost. For underemployed individuals who pass up better economic opportunity, societal costs are also imposed. Passing up on higher wages mean passing up on additional tax dollars to Canada, which funds our stressed social programs. For unemployed individuals, passing up a job opportunity elsewhere may mean a continued reliance on Employment Insurance or social assistance. More fundamentally, a person not working is a person who passes up on the opportunity of taking part in an economic process, which in the end, adds some type of value to society.

Does Canada have a labour shortage? Maybe. But some regions most definitely have labour shortages, while others struggle with surpluses. In addition to skills mismatch and an aging population, our inefficient labour allocation across regions contribute to holding back our economic and societal progress.

In nature, some animals instinctively move from barren to more fruitful lands for survial. Perhaps, to resolve our labour ills, we are relying too much on artificial pills such as temporary foreign workers and overhauls of the education and training, and not enough of the natural variety.


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