Viewpoint

Livio Di Matteo: Labour scarcity, not unemployment, is the more pressing economic challenge

Are we headed towards a future where nothing runs and nothing works?
A customer enters a restaurant with help wanted signs Wednesday, November 17, 2021  in Laval, Que. as employers deal with the labour shortage. Ryan Remiorz/The Canadian Press.

When I was a lad, I never served a term as an office boy to an attorney’s firm though I did serve a bit as an apprentice clerk at a reconstructed fur trade post for the purposes of historical dramas and interpretation. I actually spent a lot of my time watching movies and in particular loved TV movie trailers, my favourite being for a movie titled Soylent Green1Soylent Green (1973) https://www.youtube.com/watch?v=N_jGOKYHxaQ which started off something like this:

“…New York City in the year 2022, nothing runs anymore, nothing works, but the people are the same and the people will do anything to get what they need

What the people needed in this dysfunctional and chaotic future was a food product named Soylent Green whose makers had a shocking secret ingredient which was revealed at the end of the movie. I will leave it to the reader to discover for themselves the secret of Soylent Green.

Fast forward 50 years and the fiction of a dysfunctional world has oddly become reality. In the aftermath of the pandemic, the world seems to be turning into a Soylent Greenesque space where nothing runs or works at least as well as it used to. All that is missing is Soylent Green’s giant bulldozers driving through chaotic airport security lines to get rid of excess people so as to reduce congestion. Indeed, airlines around the world would be immediately restored to profitability and solve their labour shortage issues if they simply sold tickets to imaginary flights that did not exist and then kept the money. It would be a sort of virtual reality airline experience and a welcome relief from the travesty that is passing itself off as customer service.2There is no obvious scapegoat for Canada’s air travel woes https://thehub.ca/2022-07-12/steve-lafleur-there-is-no-obvious-scapegoat-for-canadas-air-travel-woes/

Much of what has been transpiring is being blamed on the disruptions of the pandemic, and while there is much truth to this, it remains that the labour shortages that have been plaguing the economy have been in the works for some time. Yet, it was always more fashionable to argue that we were headed to a world of excess supply of labour as technology and robots displaced workers. The media was rife with warnings about automation, technological change, artificial intelligence, and machine learning leading to dramatic changes in the labour markets of developed countries that would generate massive unemployment. This was despite the historical evidence of the last 150 years showing that while technology displaced workers, it also created new jobs. 

For example, between 1851 and 2017, Canada’s population grew from 2.4 to 35.2 million, a 15-fold increase, while the Canadian labour force grew 26-fold—from 762,000 to 19.7 million people. Employment data shows that from 1891 to 2017, employment in Canada grew from 1.6 to 18.4 million, a 12-fold increase, while over the same time span the labour force also increased—from 1.7 to 19.7 million, also a 12-fold increase. In other words, while one would have expected a world in which over half of people worked on farms to experience massive unemployment as farming was mechanized, it turns out they found other things to do.

And yet, the belief has persisted that the future would be one of excess labour supply and unemployment. Still, just prior to the pandemic a Fraser Institute report3Technology, Automation and Employment: Will this Time be Different? https://www.fraserinstitute.org/sites/default/files/technology-automation-and-employment.pdf argued that a growing scarcity of labour in Canada was coming. Specifically, a slowing population growth rate and a declining labour force participation rate due to retiring baby boomers and an ageing population would reduce labour force growth rates over the next few decades. As well, technological change, while changing the composition of employment, would also promote faster economic growth, which creates new jobs. Hence, it seemed unlikely that technological change would result in a decline in the aggregate demand for labour but rather would usher in a period of labour scarcity. 

With the labour market disruption of the pandemic, it would appear the process of labour scarcity has been speeded up. That 20 percent of the labour force was aged 55 and over and was expected to eventually retire was lost on many people. After a couple of years of pandemic duty, early retirement became even more attractive, especially where government financial support provided incomes equivalent to what was being earned. Indeed, for some workers, programs like the CERB probably became a nice early retirement buyout package. The labour shortage effect was magnified by the reality that workers aged 55 and over had actually been increasing their participation rate prior to the pandemic while that for younger workers had been declining. The low rate of natural population increase means not enough new workers are available to take the spots of retirees—assuming they are even interested in working more given the trend to work-life balance—and in the absence of immigration, the situation would be even direr.4The Implications of Slowing Growth in Canada’s Labour Force https://www.fraserinstitute.org/sites/default/files/implications-of-slowing-growth-in-canadas-labour-force.pdf

So, can a world where everyone wants more goods and services provided but prefer lifestyles making them less inclined to work to provide them continue to function? We are finding out the hard way.

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