After a “lost decade” of stagnant incomes, rising crime, government failures on basic functions like health care and immigration, and a once-in-a-generation affordability crisis driven by inflation, a majority of Canadians believe that Canada is broken. But decline is a choice, and better public policies are needed to overcome Canada’s many challenges. Kickstart Canada brings together leading voices in academia, think tanks, and business to lay out an optimistic vision for Canada’s future, providing the policy ideas that governments need to ensure a bright future for all Canadians.
Post-pandemic worries about labour shortages seem quaint today. Back in July 2022, when Canada’s unemployment rate was down to 4.8 percent, governments were concerned with finding more workers to meet Canadian businesses’ demand for labour.
These days, economists are increasingly concerned about unemployment, which is back up to 6.4 percent, with commentators rightly highlighting the recent labour-market changes. With today’s bigger labour supply, it may be tempting for policymakers to ease off policies on the worker side of the labour market in favour of other priorities.
This would be a mistake.
Workers are not just an input of economic activity. They are the core of the economy itself. Yet many people face serious roadblocks to finding good jobs. Temporary labour shortages may ease these challenges somewhat, but fixing them still requires structural, long-term policy reforms.
Consider three groups of untapped (or under-tapped) labour pools: people with disabilities, people with criminal records, and the working class. There is no one-size-fits-all policy that will remove the barriers these groups face, so a serious pro-employment policy agenda will need to tackle each in turn.
Work for people with disabilities
The employment rate for Canadians aged 16 to 64 was 80.1 percent in 2022. For Canadians in the same age range who had disabilities, the employment rate was only 65.1 percent. Of course, some have disabilities that make it impossible for them to have traditional employment. But the employment rate is lower for Canadians with all levels of disabilities, whether mild or very severe.
Cardus research has shown that people with disabilities want to work and most can do so. The problem is that they face many barriers to entering the workplace. Accessibility challenges are certainly part of the problem. But there are also disincentives to work built into government disability benefits across Canada.
Disability benefits can be complicated, but for our purposes, we can focus on three major components of most systems:
- A maximum benefit amount: this usually varies depending on the family structure of the person(s) with disabilities.
- An earned-income exemption: recipients can earn up to this amount without having any of the benefit clawed back.
- A phase-out rate: for every dollar of income above the earned-income exemption, some portion of the benefit is clawed back.
All of these factors are at play in someone’s decision to work. A high earned-income exemption can encourage employment by ensuring those with very low incomes can work and keep all of their benefit. A low phase-out rate can encourage employment by allowing those who are already working to keep more of the benefit if they decide to work more hours.
But these factors can reduce employment, too. Economists have long pointed to the perverse effects of withdrawing social assistance benefits too quickly when people start a new job. If phase-out rates on benefits are too high, then recipients could end up seeing no net financial benefit from working more.
In this respect, the federal government deserves some credit for recognizing this problem in the new Canada Disability Benefit. Although it has been widely panned for its minimal benefit amount, the draft regulations include a very low phase-out rate of 20 percent. That means that recipients of the Canada Disability Benefit will be able to keep 80 cents out of every dollar they earn in employment. It may not matter much on the maximum benefit amount of $200 per month, but it’s at least the right principle.
Compare this to the Ontario Disability Support Program, which phases out benefits at a rate of 75 percent, after an exemption of $1,000 per month. British Columbia is worse with a phase-out rate of 100 percent, after an exemption of $1,350 per month. That means, for example, that a single person on B.C.’s disability assistance program may see no net benefit at all whether they earned $1,350 or $2,800 per month from employment. And that doesn’t even consider the effect of income taxes on top of these phase-out rates. Under these circumstances, it is hard to see why anyone would want to work more hours or find a higher-paying job.
Of course, with a complex constellation of disability benefits across the country, the actual effect is somewhat more complicated. Nevertheless, there can be a disincentive to work built into these government benefits. Canada’s provincial governments would do well to audit all of their disability support programs to ensure that, if anything, they are biased in favour of work.
A janitor vacuums in front of the podium at finance ministers meeting in Ottawa on Monday, Dec. 15, 2014. Sean Kilpatrick/The Canadian Press.
Work for people with criminal records
We don’t really know the actual unemployment rate for people with criminal records because Statistics Canada does not track this data in the Labour Force Survey. But research studies can provide hints about this population’s participation in the workforce. For example, a recent Correctional Service of Canada study found that only half of those released from prison had a job 14 years after getting out, while their average incomes were much, much lower than for the rest of workers.
And yet having a job is a key factor in helping people with criminal records to leave crime behind for good. These are people who have paid their debt to society and are now free. It is in everyone’s interest that they find secure jobs.
The barriers that these ex-prisoners face are substantially different from those faced by people with disabilities. The scholarship suggests that there are a number of causes of these barriers, including failures by correctional facilities to rehabilitate inmates, underlying characteristics of those involved in crime that make it difficult for them to work in traditional work settings, and discrimination by employers against those with criminal records.
Let’s take one of these factors as an example of how governments could improve the employment prospects of this population. Employers are reluctant to hire an employee with a criminal record. They may fear possible equipment theft or, worse, workplace violence. But the data show that these fears are exaggerated and that people with criminal records can be excellent employees. It is therefore not just in the interests of the individual and of society to hire more people with criminal records, it’s also in the interests of employers themselves to employ this untapped labour pool.
So how can governments encourage more employers to hire these individuals? Some have suggested that governments should hide the existence of criminal records from employers, but other researchers have shown that this leads to perverse outcomes as employers look for other ways to weed out those they believe are likely to hold a criminal record.
Rather, Cardus has argued that the problem is fundamentally one of employers not having enough information to make a sound judgment about hiring someone with a criminal record. One solution is for governments to include the positive elements of an individual’s justice system involvement alongside the traditional contents of their criminal record. People with a criminal record cannot simply be reduced to a list of their crimes. Nor can their involvement in the justice system be reduced to a list of their arrests, convictions, and sentences. So criminal records should reflect this. They could include information on rehabilitation and job training while in prison, participation in work release programs, or treatment and spiritual care received while incarcerated. Giving people the option of including this information on their criminal records might begin to re-balance the perspectives of employers towards this population. At the very least, it would provide an opportunity for employers to consider the various facets of the human person at the moment that they are considering hiring someone with a criminal record.
There are other ways that governments could encourage employment among this population, including by offering a wage subsidy to employers who hire people with criminal records or by providing bonds as guarantees against dishonest behaviour by employees. The essential thing is to target the unique causes of employers’ reluctance to hire people with criminal records.
Better work for the working class
Not all labour-market issues are problems of unemployment. Some are problems of underutilization of skills and education. That is the case of Canada’s working class—workers in jobs that do not require a postsecondary credential.
Cardus research shows that over half of the working class actually has at least a college diploma—and more than a quarter of those even have a university degree. This, despite the fact that their jobs do not require this level of education. As a result, they are not earning as much as they could if they were in jobs corresponding to their credentials—and the Canadian economy is not directly benefiting from their skills, training, and education.
This represents underemployment of talent. Their underused education is an opportunity cost both for them and for the Canadian economy.
This is a major employment issue for policymakers, distinct from the barriers people with disabilities or criminal records face. Here again, there are several factors at play, but education and immigration deserve particular attention.
Our education system should better align with the actual needs of the Canadian economy. Too often, postsecondary education is exalted above other forms of training, like apprenticeships in the skilled trades, even though these career paths might be as or more fulfilling—and more lucrative—than university or college. Greater exposure to the skilled trades in high school through expanded use of co-op programs would be a good step in this direction.
Our immigration system also needs better alignment with the labour market, particularly in the area of foreign credential recognition. Immigrants, especially recent arrivals, are far more likely than other Canadians to be in working-class jobs. Unfortunately, governments have been talking about this issue for decades with little progress to show for it. This is a matter of political will and governments must finally prioritize solutions.
A “work lens” for all government policy
If there is one takeaway from all this, it’s that there is no one-size-fits-all policy to solve the problems of unemployment and underemployment. Different groups of Canadians face structural challenges in participating in the labour market to their maximum capacity, but those challenges vary significantly from one group to another.
We have proposed a handful of policy approaches that can help to break down some of the barriers faced by these groups, but there are no silver bullets. Moreover, there are many more Canadians facing different kinds of labour-market challenges than are covered here.
One thing is clear, though: government actions can have surprising and unintended consequences on Canadians’ ability to work. Even essential programs like disability assistance can, if not implemented carefully, lead to disincentives to employment. Criminal records are not solely a public-safety question; they have important consequences in the labour market. And even if advanced education can benefit many in their careers, it can also lead to an over-credentialed working class.
Canada needs, therefore, a renewed focus on employment by governments at all levels. Policymakers should employ a “work lens” on all new programs to determine to what extent they promote or inhibit employment. Governments may also benefit from auditing current programs to determine the extent to which their existing programs do so, as well.
Such a lens must not become a box-ticking or technocratic exercise by policy analysts at the Department of Employment and Social Development. It must become embedded in the thinking of public servants in every department at every level of government.
Nor must policymakers rest contentedly when most businesses no longer face labour shortages. Work is core to who we are as human beings. It may not be the sole purpose of our lives, but work is an essential part of how we provide for our and our families’ needs, serve our communities, and engage the world. Employment policy must therefore be about setting the conditions for each individual to maximize their potential in the labour force. This includes those currently outside the labour force who want and can work, as well as those whose skills are underused by the Canadian economy.
