Businesses may fear rising wages, but the jobs boom could be a boon for the rest of us: Don Pittis
Joblessness at 40-year low could help boost working people even as it slows stock market's rise
With all the consternation about the state of the Canadian economy, you might think we were doomed. But that's not what the actual numbers are telling us.
For instance, just while we were all worrying about Donald Trump and trade yesterday, Canadian exports hit new highs. Despite fear of a collapse in construction jobs and business anxiety over rising minimum wages, Canada's unemployment rate continues to stick at 40-year lows.
When Statistics Canada releases the job numbers for May on Friday, private sector economists predict they will show the country's run of low unemployment has continued.
A poll of those economists by the financial news service Bloomberg shows they expect to see unemployment stayed at that low level of 5.8 per cent while the economy cranked out another 22,000 jobs.
And while recent economic history shows falling unemployment can be a negative indicator for the future of the stock market, a shortage of workers that leads to higher wages could benefit the economy long term by putting money into the hands of people who will spend it.
It is interesting that while Canadian business leaders have repeatedly complained about new tax rules, the rising cost of paying minimum wage, and U.S. government tax cuts that will send jobs south, this week the Canadian Federation of Independent Business (CFIB) said it faces a shortage of workers.
The private sector has about 400,000 jobs sitting vacant because it can't find the workers to do them.
Nearly half a million jobs are going unfilled in the private sector in Canada as companies struggle to find qualified workers in an improving market. Ted Mallett of <a href="https://twitter.com/CFIBeconomics?ref_src=twsrc%5Etfw">@CFIBeconomics</a> talks about how to improve the current mismatch and what the economy really needs. <a href="https://t.co/QMBRGHYtQW">pic.twitter.com/QMBRGHYtQW</a>—@OnTheMoneyCBC
"It's good news, bad news," says Ted Mallet, CFIB's chief economist. "We're having an economy that has recovered. We've got unemployment rates down below six per cent now. So the counter to that is that businesses are having trouble finding that perfect fit."
Mallet says two-thirds of the worker shortage is the result of businesses not being able to find people with the correct skills.
Pushing productivity and wages
In the past, this phase in the job cycle has been good for workers because it makes employers more willing to bring in someone who is not quite fully qualified and train them up to fill the gaps. Mallet calls this "up-skilling."
Others might call it old-fashioned in-house training, which helps young graduates stuck in the position of not having the skills to get a job because they haven't had a job where they could learn the skills.
It's also good for the wider economy because it increases the number of skilled workers. In theory, that should raise the quality and productivity of the entire workforce.
The simplest traditional economic models suggest rising productivity should also affect wages.
The added cost of training unskilled or under-skilled workers makes it worth paying more for those who already have the skills that are in demand.
Mallet says the remaining third of the worker shortage is because it is difficult to find unskilled workers who are sufficiently motivated to do some of the economy's less-rewarding tasks.
In some cases, he says, businesses in such a position may choose to increase automation or simply not bother expanding at all.
Barring those options, the unskilled shortage should also put a premium on Canadians who are motivated, while forcing employers to motivate others with higher wages or better working conditions.
"But it has long been clear that wage-setting is more complicated than the simplest models allow," says an article in the current issue of the generally pro-free market Economist magazine, analyzing the reason why wages stay low in countries like Canada while the economy booms.
"There is good reason to think that power imbalances play a big part in the rich world's wage stagnation."
The myth of a direct link between pay and productivity <a href="https://t.co/519EIsGKYj">https://t.co/519EIsGKYj</a>—@TheEconomist
It's possible that a shortage of workers could be the impetus to alter that power balance, strengthening the hand of individual employees who have skills that are in demand as well as empowering workers who organize into unions.
Increasing wages in rich countries is usually viewed as a good thing because it helps expand economic activity beyond the small circle of a better-off capital-owning class. But there would be other consequences.
In some quarters, analysts worry that falling unemployment will eventually result in an end to the stock market boom as rising wages push up inflation, forcing central banks to raise interest rates. Certainly with unemployment rates in the U.S. plunging to 3.8 per cent last Friday, the Federal Reserve must be wary.
There could be a similar effect in Canada as rising interest rates slow the housing market, leading to that threatened decline in demand for construction workers. That could still happen. A trade war could still stall job creation. The optimistic forecast for tomorrow's numbers could be wrong.
But so long as falling markets don't result in a protracted and disruptive financial crisis, a shift in power that reduces the investment wealth of the owners of capital and increases the income of wage earners who will spend that money may not be just good for the workers, but good for the wider economy.
Follow Don on Twitter @don_pittis