Fast facts
- By February 2021, a quarter of a million workers in Canada who used to work in food and accommodation had found a new line of work outside of that sector;
- There are 57,000 fewer unemployed workers with recent experience in food and accommodation compared to September 2019;
- Those workers found jobs in other sectors, such as professional services;
- Job vacancy rates are two times more likely to be driven by low wages at this point of the pandemic;
- Wage increases will have to be larger now compared to the pre-pandemic era in order to reduce job vacancy rates.
Plenty of attention has been paid to rising job vacancy rates as provinces re-opened their restaurant and hospitality industries this summer. This is backed by plenty of anecdotal reports of restaurateurs’ inability to find workers.
Whenever I hear that “there is a worker shortage” I wait (in vain) for the critical proviso “at the wage I’m offering.”
This is a classic labour market problem: what do you do if you don’t get enough applicants for a job at the wage being offered? You increase the wage.
If firms are unwilling to raise wages to entice workers, it may also mean their business model is incompatible with the post-pandemic labour market.
Offered wage and whether people apply are related
Just prior to the pandemic, in the first quarter of 2020, the average wage for a new job posting in the restaurant and bar sector was $14.35 an hour. Fast forward to the second quarter of 2021 and the average new job in the sector is offering $14.75 an hour. If you adjust the difference for inflation, the real wage has actually fallen by 0.1% over the course of the pandemic.
To boot, restaurant jobs in the sector are harder now than they were pre-pandemic. Not only are you exposed to a deadly health risk, but you have to wear a mask all day, endure customer abuse while enforcing mask and vaccination rules, all while hoping new lockdowns don’t shut your job down for the fourth time.
A harder job for lower real pay does not make for a compelling case for workers.
Of course wages aren’t the only thing determining job vacancy rates. You also need to consider educational requirements, work location and job desirability. But it will come as no surprise that there has always been a negative relationship between the wages being offered for a new job and the vacancy rate in an industry (although this is often missing from articles on rising job vacancies).
If you are offering lower wages, you’re more likely to have job vacancies.
The food and accommodation industry has always had this problem, since they often offer at or near minimum wage, which is why they tend to lead the pack in job vacancies. This was just as true before the pandemic, before the Canada Emergency Response Benefit (CERB) and before the recent rehiring boom.
One of the features of the pandemic has been its impact on the relationship between wages and vacancies across industries. If we compare pre-pandemic (second quarter of 2019) to the most recent stats (second quarter of 2021), the strength of the relationship between the two has doubled. (In technical terms, the R2 of the correlation at the 3-digit NAICS went from 0.1 to 0.2 between 2019 and 2021.)
While wages and vacancy rates were inversely related before the pandemic, during the rehiring phase high vacancy rates are two times more likely to be driven by low wages at this point in the pandemic.
(click on the points to see what industry they represent)
The consequences of low wages for job vacancy rates have worsened for low-wage employers. Their low wages are having a bigger impact on vacancies and the amount that they’ll have to increase wages in order to address those vacancies has grown (technically the negative slope of the line of best fit has become more negative). If employers raised offering wages by $5 an hour pre-pandemic, they could expect the job vacancy rate to decline by 4 percentage points. Post pandemic, that $5 an hour raise would only decrease the vacancy rate by 3 percentage points.
Roughly speaking, bigger raises will be necessary in order to get workers back.
A major sectoral realignment
The pandemic economic recovery hit an important milestone in September 2021: Canada has returned to the same number of people employed as February 2020. We’ve had population growth since then, so we need more jobs now than we had a year-and-a-half ago. However, this general recovery has hidden the fact that a major sectoral realignment has been underway.
The sector that took the biggest hit during the pandemic was the food and accommodation industry, as shown in Figure 2. In September 2021, it still employed 180,000 fewer workers than it did pre-pandemic (February 2020). It is also the sector that is complaining the loudest about a labour shortage.
However, there has been a gain in workers in the professional, scientific and technical services (think accountants’, lawyers’, architects’ offices etc.). In an odd coincidence, that sector has gained 183,000 workers since February 2020.
This is true in other sectors that were impacted by job loss at the start of the pandemic, such as “other services” (think dry cleaning, barber shops, hair, and nail salons), which is down 96,000 jobs. Those job losses were offset by job growth in the education sector, which added 94,000 jobs.
Compared to the sectors that lost jobs, other sectors gained almost the same number of jobs. This is true for professional services, insurance/real estate, health care, education and public administration.
This isn’t to say that servers have become engineers, doctors or teachers but, rather, that they’re filling support positions in these industries. For example, a former restaurant server could become an office manager or secretary. It may also be that those servers have postsecondary education training in these other industries and that repeated shutdowns in food and accommodation pushed them into other jobs.
The takeaway: It’s not that restaurant workers are refusing to return to work; quite the opposite. They definitely do want to work but they’ve already gotten a job in another sector—perhaps one that pays better.
Workers have moved on
This trend of workers getting another job can be tracked in greater detail by looking at the size of the workforce in the two key sectors of food and accommodation and professional services from Statistics Canada’s Labour Force Survey (other affected sectors show similar, if less pronounced, versions of the trends below). I’m defining the workforce as the workers who are either employed in that industry or who are not employed but worked in that industry within the past 12 months and therefore have up-to-date skills. The benefit of this approach is that we can observe how many workers are not returning to work even if industry job vacancy rates are high.
In the 12 months prior to the pandemic, Canada’s food and accommodation industry had an average workforce of 1.44 million people, with little monthly deviation. In any given month there were 1.44 million people who had a job in the industry or who weren’t working but had worked in food and accommodation in the past year. The proportion of people working vs. not working in this industry swings throughout the year, with more workers employed in June, July and August, when the industry expands, and the reverse in January and February, when it contracts after the holiday season. The workforce represents a group of workers with basic skills in the industry that is rapidly brought on seasonally then laid off as business slows down.
Figure 3 illustrates how the pandemic fundamentally altered the number of workers who are available to work in bars and restaurants. In the initial months of pandemic, mass layoffs in that industry led to a big shift in whether restaurant workers had a job or not, but the actual size of workforce didn’t change substantially. The restaurant workers didn’t go off and get jobs in other industries, they just remained unemployed. However, by the summer of 2020, the food and accommodation workforce started to shrink.
There are two possible explanations for the shrinkage in the food and accommodation sector. The first is that people found jobs in other industries. The second is that their 12-month window expired and, while they still don’t have a job, they’ve lost their industry designation. If workers were not working, they would be counted in the “not working” segment of the workforce.
Up until February 2021, the shrinkage in the workforce wouldn’t have been due to workers hitting the 12-month mark. From March 2021 onward, that became a complicating factor. Between February 2020 and February 2021, the workforce had already shrunk from 1.44 million to 1.2 million—218,000 fewer workers compared to a year before.
The pool of unemployed workers with recent experience in the sector was 180,000 in September 2021. That’s 60,000 fewer people for employers to hire than in September 2019 (237,000).
There is some debate about whether decent income support for the jobless is inhibiting workers from returning to work. This data shows that they’ve already returned to work, just in a different sector. Whether improved Employment Insurance (EI) benefits continue or not, availability of that income support won’t affect the pool of workers who are available to the sector because they’ve moved on, about six months earlier.
Contrast the workforce picture for food and accommodation with that of professional services in Figure 4. Like food and accommodation, professional services shifted early in the pandemic, as people lost their job and moved to the “not employed” side of the ledger. However, this dip quickly reversed as the workforce size in professional services swelled from 1.68 million prior to the pandemic to 1.83 million workers by August 2021. The workforce in this industry expanded as the sector attracted workers from other sectors.
What happens next?
Clearly, the pandemic has shifted where Canadians work. It has also shifted where Canadians spend their money, with people buying less from certain sectors than before. The implications for particular industries, notably food and accommodation, are substantial. The sector was used to hundreds of thousands of unemployed but skilled workers who could be readily rehired to meet the seasonal needs of business. With 230,000 people who’ve left the restaurant workforce for jobs in other sectors, that pool of available workers is much smaller.
It’s possible that income support for the jobless, particularly the CERB, played a role in this switch. Decent and predictable income support, with fewer restrictions on education, may have allowed workers to shift to other industries. Those new sectors might have been ones they wanted to investigate or jobs for which they were trained but, pre-pandemic, they needed to take the first available job.
However, at this point in the pandemic, the shift to other industries has already happened and cutting jobless benefits now won’t bring workers back; nor should having afforded workers the ability to pivot to other jobs in the workforce be seen negatively.
Given sufficient time, it’s possible that the food and accommodation industry may build up a new pool of underemployed workers from youth who graduated into the working world during the pandemic or from future newcomers, although this will certainly take time.
Of course, workers who shifted to other industries could be enticed back, but it would have to be with higher pay, better hours and benefits.
In the short term, we’re likely to see four trends:
- Higher prices in sectors where the cost increase can be paid by consumers, such as fine dining;
- Self-imposed restrictions in terms of hours or capacity, due to lack of staff, which will apply to businesses reliant on rock-bottom wages, no training and a pool of the unemployed;
- Absent government support, like the Canada Emergency Wage Subsidy (CEWS), which is set to expire in October, business models that are reliant on low-wage labour may no longer be viable;
- Work practices will likely also change to conserve labour, through things like automation, on-demand delivery and more technology in restaurants.
Longer term, we’re likely to see a renewed drive for more Temporary Foreign Workers to fill vacancies without raising wages. Those workers, with no path to citizenship and limited access to basic labour rights, could allow low-wage business models to survive the pandemic—though this is clearly not an optimal trend for workers.
A higher minimum wage may well be a way to help firms help themselves, by making price increases more acceptable to consumers. This also ensures that all employers have to pay those higher costs. That reduces the competitive constraints on individual employers unilaterally raising their wages.
The magnified importance that wages play in job vacancy rates post-pandemic should not be underestimated. Higher base wages would drive up the attractiveness for potential new workers and could save businesses from closure.
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