Issue in Focus Labour Shortages in Skilled Trades The Best Guestimate?

Transcription

1 Issue in Focus Labour Shortages in Skilled Trades The Best Guestimate? By Rock Lefebvre, Elena Simonova, Liang Wang

2 About CGA-Canada Founded in 1908, the Certified General Accountants Association of Canada (CGA-Canada) is a self-regulating, professional association of 75,000 Certified General Accountants (CGAs) and students. CGA-Canada develops the CGA Program of Professional Studies, sets certification requirements and professional standards, contributes to national and international accounting standard setting, and serves as an advocate for accounting professional excellence. CGA-Canada has been actively involved in developing impartial and objective research on a range of topics related to major accounting, economic and social issues affecting Canadians and businesses. CGA-Canada is recognized for heightening public awareness, contributing to public policy dialogue, and advancing public interest. For more information, contact can be made through: North Fraser Way, Burnaby, BC, Canada, V5J 5K7 Telephone: Fax: Sparks Street, Ottawa, ON, Canada, K1R 7S8 Telephone: Fax: Electronic access to this report can be obtained at ISSN By the Certified General Accountants Association of Canada, Reproduction in whole or in part without written permission is strictly prohibited. 2 Issue in Focus

3 Labour Shortages in Skilled Trades The Best Guestimate? July 2012 Executive Summary... 4 Introduction... 6 Skilled Trades An Overarching Portrait... 7 Labour Shortages Past Experience and Future Estimates The Role of Age Structure, Educational and Labour Mobility Barriers Closing Comments References Labour Shortages in Skilled Trades The Best Guestimate? 3

4 Executive Summary Recognizing that the level of unemployment and the pace of wage increase have not yet fully recovered from the most recent recession, the issue of labour shortages in skilled trades has nevertheless resurfaced as an important concern. Two phenomena contribute significantly to the increased anticipation of future labour shortages: first, the aging of the population is expected to create a demographic shift as large cohorts of baby boomers anticipate retirement; and second, the shift in modern educational preferences often leaves skilled trades as an overlooked career option. When speaking of labour shortages, the certainty of their existence is particularly important as an incorrect assessment may lead to a sub-optimal distribution of human capital across skills levels and geographical regions, decreased employment prospects for job seekers and misguided deployment of public funds. Given this scenario, it is timely to critically examine the presence and perceptions of labour shortages experienced in skilled trades in the recent past and assess our ability to reliably estimate possible shortage situations that may occur in the future. Toward that end, the analysis of the five prevailing skilled trades in five Canadian provinces Alberta, Saskatchewan, Ontario, Québec, and Newfoundland and Labrador was undertaken. As the following pages reveal, it can be reasonably contended that: Labour shortages are difficult to observe and measure directly. Employers surveys used to assess shortages and potential deficiencies are subjective and tend to overestimate the tightness of the labour market, whereas otherwise reliable economic indicators may suffer from biased and imprecise interpretation, subjectivity, and reliance on reasonable, yet indeterminate assumptions. Pan-Canadian assessment of labour shortages is not informative as it may conceal instances of imbalance at a more detailed regional level with excess demand for the skilled trades in some provinces and industries contradicted by excess supply of workers in those trades in other regions and industries. The regional analysis of labour shortages is seriously limited by the availability of information on unemployment at the occupational level. Statistics Canada s Labour Force Survey suppresses estimates of the unemployment rate for all of the examined trades in Alberta and Saskatchewan as those estimates are considered to be below the reliability threshold. The lack of information on unemployment leaves little room for assessing the presence of labour shortages. This is particularly regretful as these two provinces are often cited as experiencing acute labour shortages. 4 Issue in Focus

5 Where sufficient data exists, an assessment shows that labour shortages occurred rather sporadically and did not persist for more than one year at a time over the past ten years. The Motor Vehicle Mechanics trade experienced labour shortages most often compared to other selected trades: this occupation was in shortage in 2006 and 2011 in Ontario, and in 2003, 2005, and 2010 in Québec. The Machinery and Transportation Equipment Mechanics trade likewise experienced labour shortages more than once; however, the shortage situations were likewise occasional and spread geographically. Deriving provincial estimates of the future labour shortages at the occupational level of detail is a daunting undertaking. The assumption regarding the industry growth rate is highly influential in the assessment of labour imbalances. Stronger than average pan-canadian economic growth does not always lead to an increased likelihood of labour shortages in a particular trade concentrated in a particular industry. The age structure of skilled trades and labour mobility barriers are not likely to seriously influence labour shortages in trades. A large proportion of skilled trades enjoy a noticeably younger age structure than all other occupations. Trades where the number of workers in the early stages of their careers exceeds the number of those close to retirement account for 64% of all skilled trades. The Red Seal Program and recent amendments to the Labour Mobility Chapter of the Agreement on Internal Trade are naturally intended to facilitate increased labour and skills mobility. Some form of educational barrier may exist in skilled trades. The number of registered apprentices nearly doubled in both nominal and relative terms over the past two decades accounting for nearly a quarter (24.2%) of all workers in skilled trades in However, the growth in completions of apprenticeships has been less remarkable. The labour market signals are not always well read by prospective apprentices, particularly in Québec and Newfoundland and Labrador. Elevated rates of unemployment in those provinces were accompanied by an accelerated rate of growth in apprenticeship registration over the past decade. Taken together, these assertions lead us to suggest that closing the statistical information gap and improving the relevance and reliability of labour market statistics at the regional and occupational levels are important and necessary steps towards understanding the true scope of labour shortages in Canada. Furthermore, focusing on measures that are activated in the presence of labour shortages may be a more effective approach than introducing programs that by default encourage greater participation in skilled trades. Expanding the existing Canadian Occupational Projection System to also include labour supply and demand projections at the provincial and sub-provincial levels may achieve greater consistency and coordination in labour market decisions of employers, job seekers, governments and educational institutions. Labour Shortages in Skilled Trades The Best Guestimate? 5

6 Introduction In the mid-2000s, the issue of labour shortages attracted significant attention from industry, organized labour, governments and educators as the Canadian economy intensified. In the aftermath of the most recent recession, the high unemployment and subdued economic growth that dis-balanced the labour market set aside stories of labour shortages yielding room to the more daunting issues of global and domestic financial and economic stability. Today, the issue of labour shortages has reappeared in the headlines despite the fact that the level of unemployment and the pace of wage increase have not yet fully recovered since the advent of the most recent recession. Although a characterized labour shortage represents an imbalance in the labour market and affects both workers and employers, shortages in some occupations may be easier to mitigate than in others. Businesses have a wider choice of organizational and labour strategies when duties of a particular occupation can be performed from any location (as, for instance, services provided by phone or automated medium). Occupations where physical presence of workers in a particular location is required however (for instance, operation of heavy equipment), labour shortages can become a significant impediment to business development. Skilled trades often belong to the latter category. Two phenomena that have become fairly prominent in recent years contribute significantly to the increased anticipation of future labour shortages in skilled trades. The first is the aging of the population that is expected to create a demographic shift by inducing large cohorts of baby boomers to exit the labour market. The second phenomenon is the shift in educational preferences where higher levels of worker education are often promoted as an important attribute of the prevailing knowledge economy. It is naturally not uncommon that most secondary school graduates attempt to immediately pursue their studies in the colleges and universities leaving skilled trades to be an often overlooked career option. Several other factors may add to the potential and likelihood of labour shortages in skilled trades. Labour productivity gains due to technological improvements and automation are less prominent in skilled trades than in some other occupations as skilled trades continue to heavily depend on the labour and skill contribution of workers. Businesses ability to shift the composition of the workforce towards lesser-skilled workers may also be limited in trades occupations as hiring standards may be stricter and more regulated whereas skills may be less transferable between occupations and skills levels. When speaking of labour shortages, the examination of at least four questions is particularly important: 1. Did the shortage indeed occur (or can reasonably be contented to occur in the future)? 2. What prompted the shortage? 3. What direct and indirect effects were generated by the shortage? and 4. What factors mitigated the anticipated level of shortage? Indeed, if assessment of 6 Issue in Focus

7 the first question in this sequence is incorrect, the answers to other questions become irrelevant. The level of aggregation in assessing the shortage is likewise important. In Canada as a whole, a sufficient number of job seekers may exist to satisfy employers demand; however, personal preferences, obligations and commitments of workers, as well as unappealing wage differentials and labour mobility challenges along with other frictions may lead to co-existence of labour shortages in some regions and labour surpluses in others. The consequences of incorrectly assessing the presence of labour shortages may be fairly detrimental as they may lead to a sub-optimal distribution of human capital across skills levels and geographical regions, decreased employment prospects of job seekers and inefficient use of public funds allocated to attracting attention to occupational groups not necessarily in need of complementary promotion. Recognizing the importance of the issue of labour shortages in skilled trades for the Canadian economy, CGA-Canada sees it timely to critically examine the magnitude of labour shortages experienced in skilled trades in the recent past, and to analyze the prospects of achieving reliable estimates of the shortage situations that may occur in the near future. To that end, this paper begins with a brief overview of main characteristics of the workforce engaged in skilled trades. This is followed by the analysis of labour shortages experienced by five prevailing skilled trades in five Canadian provinces in the past decade and an illustration of the sensitivity of estimates of future labour shortages to some basic or encoded assumptions. Furthermore, we critically assess the age structure of the trades labour force, and educational and labour mobility barriers as possible factors contributing to labour shortages. The paper concludes with highlights of the more salient aspects of our contentions. Skilled Trades An Overarching Portrait A trade is defined as an occupation for which a provincial or territorial apprenticeship program is available. A skilled trade, in turn, is a type of occupation that typically includes complex activities and requires skills and account knowledge of the subject. 1 To be designated as a trade, an occupation is formally recognized through provincial or territorial legislation as appropriate for apprenticeship training and certification. Skilled trades can be classified as compulsory and voluntary. Individuals entering or working in a compulsory trade must possess a Certificate of Qualification or be registered as apprentices with a provincial or territorial authority in order to practice in that trade. In compulsory trades, apprenticeship is also compulsory. 2 In voluntary trades, apprenticeship training and certification is 1 Canadian Council of Directors of Apprenticeship (2007). Glossary of Terms for Apprenticeship Training & Certification. 2 Individuals working in the trade prior to the compulsory requirement may be exempted from compulsory apprenticeship. Labour Shortages in Skilled Trades The Best Guestimate? 7

8 available, but not necessarily demanded and is often obtained to indicate the level of competency of the worker. Requirements for compulsory and voluntary trades vary noticeably across the country as Canada s apprenticeship system is comprised of 10 provincial and 3 territorial systems with each jurisdiction being responsible for legislating, regulating and monitoring its training and employment requirements. As such, the list of compulsory trades diverges markedly across jurisdictions. Overall, there are some 400 skilled trades in Canada; however, only approximately 50 trades 3 have compulsory certification in at least one jurisdiction. Some 1.8 million Canadians either worked or were looking for work in skilled trades in The preference towards trades occupations has somewhat changed over time as a smaller proportion of Canadians are interested in working in trades today than some 25 years ago. In 2011, 9.7% of the Canadian labour force was concentrated in trades occupations compared to 11.6% observed in The shift in occupational preferences was rather gradual but took place primarily over the late 1980s and the 1990s whereas the proportion of the Canadian labour force involved in trades occupations was fairly stable over the 2000s. Skilled trades comprise a great diversity of occupations and are found in both goodsproducing and services-producing sectors of the economy. Statistics Canada identifies 70 groups of trades in its occupational classification while a search of the Ellis Chart a tool that provides detailed information on apprenticeship training available across Canada returns 418 different trades. 5 Despite such diversity, the five largest trade groups account for more than one third of the total labour force engaged in skilled trades. These groups are formed by Carpenters that represent 10.1% of all those working or willing to work in skilled trades, Automotive Service Methodology Note 1 Classification of Skilled Trades The National Occupational Classification for Statistics (NOC-S) was used as the basis for identifying occupations that constitute skilled trades category. Employment requirements for occupations within H occupational group (titled H Trades, Transport and Equipment Operators and Related Occupations ) were analyzed to identify occupations for which apprenticeship training constitutes part of employment requirements. Employment requirements were identified based on the National Occupational Classification (NOC) developed by Human Resource and Skills Development Canada (HRSDC). Where necessary, concordance table for NOC-S 2006 and NOC 2011 was used to match NOC employment requirements with NOC-S occupations. The Ellis Chart was likewise consulted to clarify the availability of apprenticeship training for some of the occupations. Based on the described methodology, the report defines skilled trades as occupations falling under H0, H1, H2, H3, H4, H5 (excluding H52) and H6 groups of NOC-S. 3 Human Resource and Skills Development Canada website, Labour Mobility section. Available at workplaceskills/labour_mobility/index.shtml, accessed on May 28, CANSIM Table , Statistics Canada s LFS custom tabulations, CGA-Canada calculations. 5 Ellis Chart, available at accessed May 28, 2012; search criteria: Trade Name field is left blank. 8 Issue in Focus

9 Technicians, Truck and Bus Mechanics and Mechanical Repairers that account for 9.6% of the total labour force engaged in trades, Welders and Related Machine Operators (6.6%), Construction Millwrights and Industrial Mechanics (4.9%), and Electricians (4.7%). 6 The distribution of skilled trade workers across provinces follows, to a great extent, the distribution of the overall population larger provinces enjoy a larger pool of individuals working or willing to work in skilled trades. However, peculiarities of industry structure lead to a greater or lesser reliance of some of the provinces on certain trades compared to other occupations. For instance, approximately 12% of the total Canadian labour force is located in Alberta; however, this province for obvious reasons absorbs some 20% of all Canada s plumbers, pipefitters, gas fitters, heavy equipment operators, and metal forming, shaping and erecting trades. A similar over-utilization is observed in Saskatchewan and New Brunswick: Saskatchewan utilizes a nearly twice higher proportion of heavy equipment operators compared to the proportion of Canada s labour force in that province; New Brunswick, in turn, relies heavily on stationary engineers and power station operators. 7 Cases of under-utilization of certain trades are also common. For instance, Ontario contributes 38.4% of the labour force to the Canadian total, but relies on only 28.7% of all carpenters and cabinetmakers available in Canada. Saskatchewan and Newfoundland and Labrador, in turn, rely on a noticeably smaller proportion of machinists compared to the proportion of the Canadian labour force in those provinces. 8 It should be noted, though, that over- and under-utilization of certain trades by provinces does not necessarily signal labour market imbalance; instead, it is primarily a reflection of differences in the industrial composition among provinces. Certain industries heavily rely on skilled trades in their production processes. For instance, nearly 70% of the workforce of specialty trade contractors, an industry that is primarily engaged in masonry, painting, and electrical work of buildings and structures, is formed by skilled tradespeople. In repair and maintenance, and construction of buildings, roughly one half of all workers belong to skilled trades occupations. Overall, ten Canadian industries have more than one quarter of their workforce in skilled trades (Table 1). In more aggregated terms, construction, manufacturing, mining and oil and gas extraction, utilities and other services are the industries where skilled trades constitute a crucial component of the labour force. 6 Statistics Canada 2006 Census data, CGA-Canada calculations. The listed trades correspond respectively to H121, H421, H326, H411, H211 codes of NOC-S. 7 Based on 2006 Census. CGA-Canada calculations. 8 Based on 2006 Census. CGA-Canada calculations. Labour Shortages in Skilled Trades The Best Guestimate? 9

10 Table 1 Industries Where Skilled Trades Constitute More Than 25% of the Total Labour Force Canada Industry Proportion of workers in skilled trades Specialty trade contractors 69.4% Repair and maintenance 62.2% Construction of buildings 45.7% Heavy and civil engineering construction 42.9% Fabricated metal product manufacturing 36.5% Machinery manufacturing 33.5% Mining (except oil and gas) 29.5% Utilities 27.8% Primary metal manufacturing 27.6% Rail transportation 26.3% Note: Industries are shown at 3-digit aggregation of NAICS 2002; the proportion of workers is shown relative to the total labour force. Source: Statistics Canada 2006 Census, CGA-Canada computations. Some regional variations may be observed in terms of industry reliance on skilled trades. Unlike other provinces, skilled workers in British Columbia, Saskatchewan, Manitoba, and Newfoundland and Labrador account for more than one quarter of all workers in pipeline transportation which is part of the transportation and warehousing sector. Retail trade, and particularly motor vehicle and parts dealers, show a heavy reliance on skilled trades in Saskatchewan, Québec and Newfoundland and Labrador. Two other characteristics typically important of an occupational profile are gender and age. The gender mix in skilled trades continues to be highly unbalanced. In fact, men accounted for as much as 93.4% of all trades workers in 2011 with this proportion not having changed materially over the past two decades. 9 Skilled trades represent the most male dominated occupational group when compared to all other occupations practiced in Canada. The age structure warrants particular attention given the overall aging of the Canadian population and will be discussed at greater length later in this paper. 9 CANSIM Table , CGA-Canada calculations. 10 Issue in Focus

11 Labour Shortages Past Experience and Future Estimates The terms labour shortages and skills shortages are often used interchangeably; however, there is a noticeable difference between them. The concept of a labour shortage speaks to the insufficient number of people available in a given occupation to satisfy employers labour demand. Labour shortages are usually characterized by a low unemployment rate, increasing wages and net inflow of migrants into the region with labour shortages (provided that there are no barriers to labour mobility). Skills shortages, in turn, are present when skills and work experience of job seekers in a specific occupation do not match employers understanding of attributes needed to successfully carry out work responsibilities in that occupation. Skills shortages are often characterized by an elevated unemployment rate accompanied by a higher than historical average number of job vacancies, increased level of on-the-job training, and hiring campaigns targeting workers from other regions. Both labour shortages and skills shortages have negative consequences for the economy as they hamper businesses ability to pursue new opportunities and to function to their full potential. However, the factors that cause and instigate these two types of shortages are fairly different: labour shortages are typically caused by changes in the age structure of the workforce, barriers to labour mobility, strong positive demand shocks, and changes in occupational preferences of individuals. Skills shortages, on the other hand, are primarily rooted in the insufficient quality or orientation of labour which, in turn, may be caused by changes in production process, limitations of the educational regime and some other factors. To ensure the desirable depth of the analysis, this paper will focus only on the issue of labour shortages pertaining to skilled trades. Labour Shortages Experienced in the Past Although the concept of labour shortage is fairly straightforward, observing shortages is difficult given that the complexities inherent to the labour market are intricate to measure directly. Surveys of market conditions conducted directly with businesses one of the methods used to assess labour shortages are fairly subjective and tend to report labour market tightness as a shortage even though the problem is not seen being serious enough to increase wages and overtime hours. The other method estimating labour shortages based on economic indicators often suffers from a biased or imprecise interpretation as assumptions made for the estimates are subjective. 10 Moreover, the labour market usually has at least some ability to mitigate labour shortages and surpluses making them less observable. For instance, an increase in demand for labour in one of the regions may lead to a short-run increase in wages which, in turn, is expected to generate a 10 Sharpe A., et al, (2008). Apprenticeship Issues And Challenges Facing Canadian Manufacturing Industries, Centre for the Study of Living Standards, Research Report No , pp Labour Shortages in Skilled Trades The Best Guestimate? 11

12 labour supply response from the unemployed, workers in other industry/occupations, and migrants from other regions. Likewise, businesses may change their strategy and hiring intentions by either re-evaluating certain opportunities or moving/outsourcing parts of their labour needs to other locations in a response to the initial tightness of the labour market. As such, labour market imbalance and friction will primarily exist while such adjustment processes take place and their magnitude may not be fully captured. In some situations, though, more prolonged shortages or surpluses may appear when the mitigation process is impeded by slow adjustment in wages, 11 educational barrier (i.e. time required for training to practice in the occupation) and labour mobility barrier. Such shortages are typically easier to observe; however, their magnitude is derived through different indicators and thus may differ from those actually identified. The examination of labour shortages presented in the paragraphs that follow recognizes the limitations of available assessment tools and is done with the caveat that establishing purely objective estimates of labour market imbalances is imperfect. If judged by the results of the Business Outlook Survey conducted by the Bank of Canada, firms experienced serious challenges in recruiting and retaining workers at the end of the 1990s when some 68% of companies reported that labour shortages restricted their ability to meet demand. Comparatively, the situation during the first quarter of 2012 did not suggest a tightness on the labour market as only 27% of firms experienced some form of labour shortages (top graph of Figure 1). To better assess the particularity of the state of skilled trades, the unemployment rate may be used. An occupation may be said to experience a tightness of the labour market if the unemployment rate in that occupation is below of the unemployment rate for all other occupations. As seen from the bottom graph of Figure 1, the unemployment rate of those working in skilled trades was consistently below of that for all other occupations between 1995 and 2008 suggesting that demand for skilled trades was higher than that for all other workers. 11 Multi-year labour contracts between workers and employers, imperfect information, wage controls and social welfare provisions may influence the wage structure increasing wage stickiness. 12 Issue in Focus

13 Figure 1 Unemployment Rate Differentials and Labour Shortages Reported by Firms Canada 80% 68% Proportion of firms that face labour shortages Recession period 60% 40% 27% 20% 26% 0% 7% 14% 12% 12.4 Unemployment rate 10% 8% 10.3% 7.4% 6% 4% 6.1% 2% 0% Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Recession years All occupations Skilled trades Source: Top graph: Business Outlook Survey, Bank of Canada; Bottom graph: CANSIM Table and Statistics Canada s LFS custom tabulations, CGA-Canada calculations. Labour Shortages in Skilled Trades The Best Guestimate? 13

14 The differentials in unemployment rates were not homogeneous across provinces. In Ontario and British Columbia, the difference between the unemployment rate in all occupations and in skilled trades was particularly noticeable with skilled trades experiencing a much tighter labour market; this was predominantly the case in the early 2000s when the differential in unemployment rates reached as high as 2.4 percentage points in some of the years. In contrast, in Alberta and Saskatchewan, the gap between the unemployment rate of all occupations and that of skilled trades was almost inexistent over the past 15 years; however, unemployment rates in both groups were at a record low reaching as low as 3.3% in Alberta in Québec followed very closely the national trend while in Atlantic provinces, skilled trades were in lower demand when compared to other occupations. After some instability in the trend during the most recent recession, skilled trades in all but Atlantic provinces experienced a tightening in the labour market conditions by the end of To illustrate the regional differences in demand for skilled trades, Figure 2 presents two highly diverged cases. It should be noted that high demand for labour in a certain occupation does not necessarily mean that the occupation experiences a labour shortage. A labour shortage occurs when the unemployment rate falls below its natural rate which can be thought of as reflecting the minimum level of unemployment that would exist in an economy operating at full capacity. The natural level of unemployment is always present in the economy and includes, for instance, individuals in a voluntary transition between jobs, those who might have chosen not to work at the prevailing wage rate, and those facing challenges in finding work due to lack of skills. Although the natural unemployment rate is well defined in theory, in practice it is not observable. 14 Issue in Focus

15 Figure 2 Unemployment Rate in Skilled Trades and All Occupations Selected Provinces 30% Saskatchewan 25% Unemployment rate 20% 15% 10% 5% 10.6% 7.4% 5.0% 4.1% 0% % Newfoundland and Labrador 25% 22.1% Unemployment rate 20% 15% 10% 18.0% 16.7% 12.7% 5% 0% Recession years All occupations Skilled trades Source: CANSIM Table and Statistics Canada s LFS custom tabulations, CGA-Canada calculations. Labour Shortages in Skilled Trades The Best Guestimate? 15

16 An alternative approach to identifying labour shortages involves looking at the combination of growth rates in employment, unemployment and wages. This methodology is used by Human Resources and Skills Development Canada (HRSDC) in its national occupational analysis. An occupation is considered to be in an excess-demand situation when employment and wages in that occupation are increasing substantially faster than in other occupations and when its unemployment rate is markedly lower than in previous years or relative to other occupations. 12 The analysis undertaken by HRSDC at the national level suggests that none of the skilled trades occupations for which the analysis of imbalances is conducted was in shortage between 2008 and The situation was quite different in 2005 to 2007 when according to HRSDC the following four skilled trades showed signs of shortages: Industrial Electricians, Heavy-duty Equipment Mechanics, Facility Operation and Maintenance Managers, and Contractors and Supervisors in Electrical Trades and in Mechanic Trades. 13 Two years prior (i.e. in ), a somewhat different set of skilled trades was gauged to be in shortage; including Residential Home Builders and Renovators, Facility Operation and Maintenance Managers, and Contractors and Supervisors in Pipefitting and Carpentry Trades. 14 This inconsistency in labour market imbalances in skilled trades contrasted markedly with some other occupations where labour shortages persisted throughout an extended period of time. For instance, according to HRSDC, Physicians, Dentists and Veterinarians, Medical Radiation Technologists, Therapy and Assessment Professionals, and Optometrists and Chiropractors were in shortage all years between 2003 and The assessment at the national level may conceal many instances of imbalances at a more detailed regional level with excess demand for the skilled trades in some provinces and industries coexisting with excess supply of workers in those trades in other regions and industries. To address this intricacy, the above analysis of labour shortages experienced in the past is extended from the national to the regional level focusing on five provinces Alberta, Saskatchewan, Ontario, Québec, and Newfoundland and Labrador. 15 In each province, the examination of labour shortages is further narrowed to five prevailing skilled trades 16 Carpenters and Cabinetmakers; 12 Human Resources and Skills Development Canada (2008). Looking-Ahead: A 10-Year Outlook for the Canadian Labour Market ( ), Cat. No.: HS28-23/2009E PDF, p Human Resources and Skills Development Canada (2008). Looking-Ahead: A 10-Year Outlook for the Canadian Labour Market ( ), Cat. No.: HS28-23/2009E PDF, p Human Resources and Skills Development Canada (2006). Looking-Ahead: A 10-Year Outlook for the Canadian Labour Market ( ), Cat. No.: HS28-23/2006E PDF, p The choice of provinces was guided by the intention to account for the two largest Canadian provinces (Ontario and Québec), the two fastest growing provinces (Alberta and Saskatchewan) and one of the provinces that is usually seen as experiencing a net outflow of workers (Newfoundland and Labrador). Newfoundland and Labrador is also the province that has experienced the most sporadic pattern of economic growth over the past 10 years with annual growth in real GDP reaching as high as 15.6% in 2003 and as low as -9.2% in Based on 2006 Census data. The listed trades represent five prevailing skilled trades in Ontario, Quebec and Alberta. In Saskatchewan and Newfoundland and Labrador, Heavy Equipment Operators rank 6th yielding only slightly to another trade. However, to allow for consistency of the analysis and given that the differences in raking are minor, the five identified trades are treated as the prevailing trades for all five provinces. 16 Issue in Focus

17 Electrical Trades and Telecommunications Occupations; Metal Forming, Shaping and Erecting trades; Machinery and Transportation Equipment Mechanics; and Automotive Service Technicians. 17 Together these selected trades represent more than 52% of all workers in skilled trades in each of the selected provinces. As seen from Figure 3, assessing the presence of labour shortages is under the best of circumstances challenging. One of the main barriers (which also becomes an impasse) is the lack of information on the unemployment rate for some of the selected trades in some of the provinces. For instance, Statistics Canada s Labour Force Survey suppresses estimates of the unemployment rate for all the selected trades in Alberta and Saskatchewan as those estimates are considered to be below the reliability threshold. This is particularly problematic as these two provinces are often cited as experiencing acute labour shortages. A similar situation is observed for two of the selected trades in Newfoundland and Labrador. Naturally, the lack of information on unemployment leaves little room to assess the potential of labour shortages. The examination of labour market imbalances in the provinces/trades for which data are available shows that the shortage situation occurs rather sporadically (or occasionally) throughout the period under consideration and does not persist for more than one year at Methodology Note 2 Estimating Past Labour Shortages The methodology for the analysis of the past labour shortages is adopted from the Canadian Occupational Projection System developed by HRSDC (see Footnote 12 for the reference publication). A trade is said to have signs of labour shortages if the following three conditions are met: (i) the employment growth rate of the trade is at least 50% higher than the average growth rate for all occupations, (ii) the average wage in the trade grows at the rate at least 30% higher than the growth rate of wage in all occupations, and (iii) the unemployment rate in the trade is at least 30% below the average unemployment rate for all occupations. To account for the fact that similar unemployment rates do not necessarily indicate a similar tightening of the labour market in each of the trades, a supplementary approach for identifying labour shortages is also utilized. According to this approach, a trade is said to have signs of labour shortages if the first two of the three aforementioned conditions are met and the unemployment rate in the trade is close to its lowest historical level. The test for labour shortages is performed for each year between 2003 and 2011 for each of the selected trades and provinces. a time (Figure 3). Over the past ten years, Motor Vehicle Mechanics trade experienced excessdemand pressures most often compared to other selected trades: this occupation was in shortage in 2006 and 2011 in Ontario, and in 2003, 2005, 2010 in Québec. The unemployment rate of Motor Vehicle Mechanics in those years reflected well the presence of the pressure remaining at the level of 3% 4% while all other occupations experienced a twice higher unemployment rate. Machinery and Transportation Equipment Mechanics was another trade that experienced some labour 17 These trades correspond respectively to H12, H21, H32, H41 and H42 codes of NOC-S. Labour Shortages in Skilled Trades The Best Guestimate? 17

18 shortages; however, the shortage situations were likewise occasional and spread geographically. In Ontario, a brief episode of labour shortages was also observed for Electrical Trades and Telecommunication Occupations in the aftermath of the most recent recession. Figure 3 Labour Shortages in Selected Skilled Trades in Five Canadian Provinces Alberta Carpenters and Cabinetmakers Electrical Trades and Telecom. Occupations Metal Forming, Shaping and Erecting Trades Machinery and Transp. Equipment Mechanics Motor Vehicle Mechanics For all selected trades, estimates of the unemployment rate are suppressed for most of the years Saskatchewan Carpenters and Cabinetmakers Electrical Trades and Telecom. Occupations Metal Forming, Shaping and Erecting Trades Machinery and Transp. Equipment Mechanics Motor Vehicle Mechanics For all selected trades, estimates of the unemployment rate are suppressed for most of the years Ontario Carpenters and Cabinetmakers Electrical Trades and Telecom. Occupations Shortage Metal Forming, Shaping and Erecting Trades Machinery and Transp. Equipment Mechanics Shortage Shortage Motor Vehicle Mechanics Shortage Shortage Québec Carpenters and Cabinetmakers Electrical Trades and Telecom. Occupations Metal Forming, Shaping and Erecting Trades Shortage Machinery and Transp. Equipment Mechanics Shortage Motor Vehicle Mechanics Shortage Shortage Shortage Newfoundland and Labrador Carpenters and Cabinetmakers Electrical Trades and Telecom. Occupations Metal Forming, Shaping and Erecting Trades Machinery and Transp. Equipment Mechanics Motor Vehicle Mechanics Shortage Shortage Shortage For these two trades, estimates of the unemployment rate are suppressed for all years Note: Some of the titles of trades are shortened to allow for an easier visual representation. Source: Statistics Canada s LFS custom tabulations, CANSIM Tables and , CGA-Canada computation. 18 Issue in Focus

19 Newfoundland and Labrador presented a particularly interesting case: the 21.3% unemployment rate among Carpenters and Cabinetmakers, the 15.0% unemployment rate among Electrical Trades, and the 20.6% rate registered for Metal Forming, Shaping and Erecting Trades (observed in 2008, 2011 and 2011 respectively) could barely suggest the presence of labour market tightness. However, these levels of unemployment were at historic lows and accompanied by an accelerated growth in employment and wages. Taken together, these factors led to labour shortages in those trades in those particular years. It should be noted that the identified labour shortage seem to be somewhat concentrated in 2011 (particularly when compared to other years within the observation timeframe). One of the possible explanations resides in the fact that the labour force tends to decline during and shortly after the recession as less employment opportunities are available. As economic growth picks up in the aftermath of the recession, those having left the labour force may re-enter; however that may happen at a slower pace than the growth in employer demand for labour leading to temporary tightening of the labour market. Re-evaluation of the shortage situation observed in 2011 may be important once the data for 2012 becomes available. Estimates of Future Labour Shortages At the national level, the Canadian Occupational Projection System (developed and maintained by HRSDC) represents the most comprehensive publicly available tool that provides projections of future labour demand and supply and allows for identifying those occupations that may face a shortage or surplus of workers over the medium term. The latest projections cover the 2011 to 2020 period. At the regional level, labour supply projections that would provide consistent information at the provincial level are not available; some provinces publish a qualitative assessment of the employment prospects in different occupations and only Alberta and New Brunswick provide a forecast of the number of employed in the province through detailed occupational breakdown. In addition to the lack of consistent occupational projections, any forecasting exercise bears a question of reliability and fitness of the model. Forecasting models are based on assumptions regarding the variables and the relationship between those variables. As the assumptions are made to enable the representation of complex relationships in a simplified form, the assumptions often do not withstand the test of reality; particularly in a fluid market. When it comes to occupational projections, further complexity is added by the constant state of flux caused by such factors as adoption of new production techniques, changes in consumer preferences, and fluctuations in prices for goods and services. As seen in the preceding subsection, assessing past labour shortages at the detailed regional and occupational levels is a challenging task. Deriving an estimate of the future labour shortages at the same level of detail is an even more daunting undertaking. To illustrate the sensitivity of Labour Shortages in Skilled Trades The Best Guestimate? 19

20 shortage estimates to one of the most basic assumptions the growth rate in employers demand for labour an analysis of possible imbalances was undertaken for selected skilled trades in five Canadian provinces Alberta, Saskatchewan, Ontario, Québec, and Newfoundland and Labrador. Two scenarios were constructed to account for possible differences in the future growth in labour demand. The average growth scenario assumes that the annual rate of employment growth over the projection period will be equal to the average annual growth rate in employment observed in ; the optimistic growth scenario assumes that the employment growth over the projection period will be equal to that observed in , the period when the Canadian economy expanded at the fastest pace over the past decade (Table 2). Methodology Note 3 Estimating Future Labour Shortages Labour shortages (surpluses) are estimated for a 5-year period (i.e. for the year 2016). A labour shortage (surplus) in a skilled trade is assumed to exist when employers demand for labour in that trade exceeds (is less than) available supply of labour. It is also assumed that (a) demand for labour depends on the overall macroeconomic condition and industry growth, and (b) the level of employment in skilled trades observed in the past has predicting power and is indicative of the future demand for labour. Future demand for labour is estimated as shown in equation 1 where the Growth Rate parameter is calculated based on equation 2 (with t denoting the beginning of the reference period and n the number of years in the reference period). 1) Labour Demand 2016 = Employment 2011 (1 + Growth Rate) 5 n Employment 2) Growth Rate = t+n 1 Employment t Future supply of labour is estimated based on three elements (equation 3): (i) the current level of the labour force in skilled trades (denoted as Labour Force), (ii) the number of trades people that are expected to retire during the projection period (Retirement), and (iii) the number of people that are expected to enter skilled trades during the projection period (New Entrants). 3) Labour Supply 2016 = Labour Force 2011 Retirement + New Entrants n Employment Data for the labour force in skilled trades is based on Statistics Canada s Labour Force Survey t+n custom Employment t tabulations. The retirement patterns for trades workers are identified based on the comparison of the labour force composition in four age groups (45-49, 50-54, 55-59, and years of age) in 2006 and The identified retirement pattern is then used to estimate the number of retirees in The number of new entrants into the trade is estimated based on the past growth rates in the number of trade certificates granted to apprentices and qualifiers. The process of selecting industries/trades for which the imbalances are estimated is as follows: First, five largest skilled trades are identified in each of the provinces (at 2-digit level of aggregation of NOC-S); for each of those trades, the industry with largest concentration of that trade is selected (for instance, the construction industry is selected for carpenters and cabinetmakers in Ontario as 74.8% of this trade s labour force is concentrated in that industry). The further shortlisting of trades is completed based on the availability of data on the number of trade certificates granted to apprentices and qualifiers in that trade. 20 Issue in Focus

21 Table 2 Labour Imbalances as a Percentage of Labour Supply Estimates for 2016 Industry and skilled trade Average growth (based on growth rate) Optimistic growth (based on growth rate) Alberta Construction industry Carpenters and cabinetmakers -4.9% -26.5% Electrical trades and telecommunications occupations -4.3% -29.8% Repair and maintenance industry Welders and related machine operators 15.1% -35.9% Saskatchewan Construction industry Carpenters and cabinetmakers -20.2% -31.5% Motor Vehicle and Parts Dealers Automotive service technicians 19.0% -8.5% Repair and maintenance industry Welders and related machine operators -0.2% 3.6% Ontario Construction industry Carpenters and cabinetmakers -3.2% -2.4% Electrical trades and telecommunications occupations 0.5% -14.5% Repair and maintenance industry Automotive service technicians 9.5% 17.3% Québec Construction industry Carpenters and cabinetmakers -0.4% -11.4% Electrical trades and telecommunications occupations 0.7% -8.6% Repair and maintenance industry Automotive service technicians 24.9% 4.7% Newfoundland and Labrador Construction industry Carpenters and cabinetmakers -13.9% -41.8% Electrical trades and telecommunications occupations 1.5% -16.5% Telecommunications industry Electrical trades and telecommunications occupations 1.3% -17.5% Note: a negative number indicates an estimated labour shortage; a positive number indicates an estimated labour surplus. The choice of words average and optimistic in the title row refers to the overall rate of Canada s economic growth in the indicated time periods. Labour Shortages in Skilled Trades The Best Guestimate? 21

22 It should be accentuated that imbalances presented in Table 2 are estimated in a static manner and do not take into account that initial signs of labour shortages/surpluses will likely generate adjustments in wages and unemployment rates which, in turn, may prompt labour movement across industries and provinces (as well as internationally), and may affect educational and career preferences of some individuals. If and as those adjustments take place, the same growth rates in employers demand will result in smaller imbalances than those suggested by the estimates. A couple of points may be of interest to highlight based on the estimates of imbalances. First, stronger than average pan-canadian economic growth does not always lead to an increased likelihood of labour shortages in a particular trade utilized by a particular industry. For instance, the construction industry in Ontario may experience less acute labour shortages of carpenters and cabinetmakers under the growth rates seen during the strong economic expansion (i.e ) than during a more extended period of time which also included an economic slowdown and a recession (i.e ). Second, the assumption regarding the industry growth rate is highly influential in the assessment of labour imbalances. Employment in the repair and maintenance industry in Alberta expanded by a mere 0.7% over , but saw a booming rate of growth (10.6%) in Consequently, assuming that an average growth scenario will materialize in Alberta s repair and maintenance industry over the next five years will leave the industry with a 15% surplus in welders and related machine operators. A more optimistic growth assumption, on the other hand, will result in an acute (more than one third) shortage of welders in that industry in Alberta. Third, it may happen that under the same growth scenario, shortages of skilled workers in one province coincide with surpluses in the other. Based on the estimates, this is the case for welders and related machine operators in Alberta and Saskatchewan, and automotive service technicians in Ontario and Saskatchewan. Availability of information on job openings across provinces may be crucial to mitigate such imbalances. 22 Issue in Focus