By Jock Finlayson

It is now more than three years since Canada’s recession officially ended and the economy returned to a path of (modest) growth. During this period, the labour market has also rebounded, with the country adding approximately 820,000 jobs and the unemployment rate edging lower. Still, 1.4 million Canadians remain without work, and many young adults in particular are having a tough time making their way into the job market.

People Without Jobs, Jobs Without People
Despite an economy that is still operating below full capacity, many employers report difficulties in finding workers. This points to a growing “skills mismatch” in the labour market. Mismatches refer not only to specific skill shortages, but also to more general gaps in qualifications, knowledge, training and education. In this situation, some people are unable to find jobs, even as employers complain they can’t fill vacant positions.

The skills mismatch problem was vividly portrayed by former Ontario college president Rick Miner in his 2010 book, People without Jobs, Jobs without People. Miner emphasizes two forces that are transforming the job market: population aging and the development of a knowledge economy. He argues, correctly, that a larger proportion of young people will require some kind of post-secondary credential if they aspire to have productive careers. These credentials include not just university degrees, but also college diplomas, as well as recognized and portable qualifications in skilled trades and technology-based occupations.

Pace of Change Widens Gaps
In a dynamic economy, certain industries are always expanding and others contracting, so some degree of labour market mismatch is inevitable. However, in a world of rapid technological innovation and accelerating knowledge obsolescence, the gaps between skills and job openings appear to be widening.  When human capital depreciates, training can play a critical role. While firm- or industry-sponsored retraining and up-skilling makes sense for existing employees, training new labour force entrants or workers transitioning from one industry to another is a more complicated task, one that calls for a response through government policy and targeted programming. There is also the serious problem of those who lack the basic skills – literacy, numeracy, good work habits, etc. – needed to gain employment in most sectors.

Regional Scarcity Highlights Mismatch in B.C.
Particularly in Western Canada, there is a regional dimension to the labour mismatch issue. Regional labour scarcity can arise due to a lack of qualified local people to fill jobs in a given community. Mismatches also occur when suitably skilled people exist, but live in different regions (or do not meet employment criteria for other reasons, such as language barriers). In B.C., the pattern of reported skill and labour shortages suggests the province is indeed experiencing geographic mismatches: some job opportunities are in regions where the labour supply is inadequate, and some unemployed and under-employed people in urban communities who do possess relevant qualifications are unwilling or unable to move to where the jobs are. This problem is likely to get worse as natural resource-based industry sectors continue to grow across Western Canada – and as immigrants with a demonstrated preference for urban living come to make up an ever-increasing share of the population.

Studies Target Mobility, Skills and Education
The past few years have seen an upsurge in research on skill shortages and mismatches. A study by two International Monetary Fund economists that looked at data from all 50 U.S. states concluded that local unemployment rates are linked to skill mismatches, as well as to housing market developments that have diminished workers’ geographic mobility.1 The authors estimate that the aggregate mismatch between the supply and demand for skills in 2010 was about 1¾ percentage points higher than before the onset of America’s housing market meltdown in 2007. A 2011 Brookings Institution study found that inadequate skills and education among unemployed workers, relative to the requirements for available jobs in some occupations, was “hampering economic recovery in U.S. metropolitan areas.”2

Aligning Efforts with Market Trends
What can be done to ameliorate skill shortages and other mismatches between labour supply and demand? The main lesson for policy-makers is to ensure that the resources allocated to publicly-funded education and training are aligned with economic and labour market trends. B.C. universities, for example, are churning out more teachers than will be needed in the next 10-20 years, yet the province isn’t training enough people in some skilled trades and technical occupations. B.C. has significantly expanded basic undergraduate university education, but arguably the province hasn’t put sufficient emphasis on graduate-level training or the development of advanced skills in the sciences, technology, engineering and mathematics (the so-called “STEM” disciplines); this is where demand for workers is expected to grow steadily in the years ahead.

Shifts in policy and in the way taxpayer dollars are used to fund different areas of education and skills development can help to reduce the extent and persistence of the labour market mismatches that threaten to hold our economy back.

Jock Finlayson is the executive vice-president of the Business Council of BC.

(PeopleTalk: Winter 2012)