Have you been to a restaurant recently, and noticed that the service was unusually slow? Or, perhaps you went shopping last weekend, and couldn’t find any staff members to help you. If so, then you are not alone – Canada’s service industry is facing unprecedented staff shortages, as the country’s economy reopens after the COVID-19 pandemic forced many businesses to shut their doors for months on end.
The services sector was arguably the most affected by pandemic restrictions. According to Statistics Canada, the number of job vacancies in food services and hospitality increased by nearly 15% between the second quarters of 2019 and 2021, reaching an all-time high of 89,100. During that same period, job vacancies in general increased across all provinces, most notably in Quebec (+38.3%) and in Ontario (+24.1%). Many hospitals found themselves understaffed, as COVID-19 related hospitalizations rose without a proportional increase in the number of nurses to patients.
However, even as restrictions across Canada eased significantly over the summer and customers were eager to indulge in “revenge spending”, many workers simply did not show up. Deloitte Canada estimates that over 30% of businesses in the country are reporting labor shortages and that the most affected industries are hospitality, food service, and healthcare. The firm predicts that while employment in these two industries will experience growth heading into 2022, shortages will remain significant for some time.
over 30% of businesses in the country are reporting labour shortages
Several reasons could explain the unusual shortages. Perhaps the most noteworthy is the massive stimulus packages issued by the Federal Government in the past months. According to the Government of Canada, as of July 18, 2021, $87.1 billion had been paid out through wage subsidies. On top of that, recovery benefits known as CERB – had combined to $26.9 billion. The stimulus payments are expected to continue until at least October 23, 2021.
While the recovery benefit packages have been helpful to alleviate some of the struggles related to the economic downturn, the reality today is that many people are content with the benefits that they continue to receive, and are not willing to return to full-time work. A key issue is that many are avoiding working above a certain threshold of hours because otherwise, they are no longer entitled to the various unemployment subsidies. Prolonged government assistance is therefore creating an incentive for many workers to stay home rather than return to full-time employment. Whether stimulus payments should persist further is a separate discussion with its own pros and cons.
Another reason that could explain the lack of personnel is a structural shift away from the service industry towards knowledge sectors. With the pandemic having forced so many people to stay home, some have reevaluated their career goals and have decided to exit the services industry, transitioning into corporate positions or going back to school once restrictions eased. According to The Economist, most of the growth in Canadian employment in the last decade has occurred in knowledge-based sectors. While it is encouraging to see that more Canadians are choosing to pursue higher education, businesses in the services sectors are paying a high price for this shift, as they face an ever-shrinking supply of labor.
The healthcare industry in Canada has also been affected by labor scarcity. Earlier in the pandemic, poor working conditions in several long-term care homes forced thousands of nurses to exit the health network in Quebec and Ontario. Last month, the Government of Quebec announced that it would inject $1B into the healthcare network amid serious shortages of staff. The funds will be split between lump sum payments for new staff and bonuses for existing nurses. This comes as the province attempts to fight back against a Delta-driven fourth wave. With this move, the government hopes that more nurses will enter the field and current nursing staff will be incentivized to stay.
The consequences of staff shortages are numerous. First, there is some concern about potential future inflation arising from wage bumps. A common response to labor shortages by employers (and governments) is to hike up salaries in an attempt to attract more staff. This has a direct impact on consumer prices, as companies raise their prices in an attempt to maintain their margins. The result is a general increase in prices. While inflation is not always an undesirable outcome, it can nonetheless pose challenges if it is not monitored. It will be interesting to see whether wage increases will have a real impact on inflation, and what the Bank of Canada’s response to it will be.
Tired and overworked employees are another repercussion of staffing constraints
Tired and overworked employees are another repercussion of staffing constraints. Not only are businesses in service sectors not meeting their profitability objectives, but their employees are working overtime, sometimes performing duties outside of their job description. In some hotels, managers have had to step in to wait tables, help clean rooms, and do laundry. Restaurant employees are working more shifts than they can handle, which is adding stress to an already stressful job. CNN reports that servers at restaurants are performing additional roles such as cooking and cleaning, which means that they are earning fewer tips than they would if they were spending more time waiting tables. Overworked employees often resort to quitting, which only amplifies the problem of staffing shortages.
So, what’s next? Perpetual wage increases are not a solution, and government subsidies cannot go on forever. As the pandemic continues to recede in Canada and other countries with high vaccination rates, it is expected that the supply of labor will eventually increase. However, for the time being, employers ought to ensure that working conditions are manageable and that employees are offered some flexibility to avoid burnout. While working remotely is not always an option in the services industry, other benefits such as vacation days, paid sick leave and flexible scheduling could go a long way. Training existing employees is always a good idea, as it can partially make up for shortages through increased productivity. As customers, our responsibility towards service employees is to be patient and to recognize how difficult their role is, especially within today’s context.
