Business quest to do more with fewer workers confronts productivity puzzle

Even asthe world debates whether we are or are not in a recession, a persistent shortage of workers has business leaders and economists struggling to understand one of Canada's most intractable, and some say most crucial, economic problems.

Despite the slowing effect of rising interest rates intended to fight soaring prices, employers across the country continue to complain they can't find the workers to fill empty jobs. And while many expect Canada's surging job creation will soon end as recession bites, predictions for Friday's latest jobs report suggestit hasn't happened yet.

When the jobs numbers were released at 8:30 a.m.,they showed the economy lost 31,000jobs in July, leaving theunemployment rate unchanged at 4.9 per cent.

According to economic theory, a solution to the worker shortage beckons:Simply invest in technology and figure out how to smooththe kinks in production to increase profits without increasing the number of employees.

A productivity challenge

While the theory may sound simple,making it work in the real world is a huge challenge forbusinesses, governments and economists trying to make Canadians more productive. And it's not just a Canadian problem.

Last week one of the world's most influential business leaders, Google boss Sundar Pichai, announced to employees that parent company Alphabet was launching a plan called "Simplicity Sprint," to increase economic productivity.

The announcement is already generating worries thatthe policy hints at coming layoffs, and not just at Google where profit growth has slowed. But economists insist that boosting productivity is not about layoffs or making each employee work harder.

According to reamsofbooks and online articles, productivity is all about making yourself a better person by gettingorganized so you can do more in your busy life and stop all that time-wasting.But that's not how economists define it, according to Western University economics professor Audra Bowlus,who researches Canadian productivity.

"We can think about labour productivity as being kind of theamount of value added per worker," said Bowlus.

As Bowlus and others describe it, the reason productivity is so important is that it provides the foundation for national wealth and wellbeing. It also makes individual companies more profitable. In a collective sense, increasing productivity makes us richer as a country and allows average wages to rise.

Don't squeeze the workers

Experts note atrue increasein economic productivity should happenwithout employees working longer hours or being saddled with the increased stress of doing more with less. As we've seen in sectors where that has been tried, such as Canadian emergency rooms, burnout that causespeople to quittheir jobs does not lead to long-term efficiency.

As Bowlusexplained, boosting productivity should be understood as increasing outputwithout increasing inputs. The idea is to do things in a more efficient way, buying or inventing cheaper machines to help with the job, or creating procedures that require fewer laborioussteps.

"It can be the machines becoming more productive through technology," said Bowlus. "It can also be the workers becoming more productive through more education or enhancing their skills or just being able to work better with those machines."

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But that doesn't mean jobs are not lost in the process, said Michael Veall, an economist atMcMaster Universitywho isleading a team of researchers and workingwith Statistics Canada to bolster Canadian productivity.

Veall points to jobs such as ice man or elevator operator, professions eliminated by technological progress such as the invention of electricity and refrigeration, or the switch from the human skill of making elevators stop at just the right level to match the floortoautomatedpushbuttons.

Veall,who once worked in one of Canada's last remainingelevator operator jobs he pushed the buttons and gave a spiel at the SkylonTower in Niagara Falls says economistsdebate over whether things like self-service checkouts at the grocery store should be considered labour replacementor actual enhancedproductivity.

Mind the productivity gap

But that dispute is overshadowed by a much greater debate over why Canadian progress on productivity has been so poor compared to similar countries around the world. Statistics Canada data has shown that after an extraordinary record leap in 2020 caused by the pandemic, productivity fell sharply in 2021, and continued falling at the beginning of this year, down from pre-pandemic levels.

Part of Veall's project is to find a way to distributepreviously difficult-to-access data from businesses out to Canadian economists so they can try to understand where productivity happens and the effectiveness ofmany federal and provincial schemes meant to increase employer efficiency. Until now, much of theresearch has beenbased on foreign data.

A lot of analysisdecries the gap between Canada and the U.S., suggesting Canada needs to follow the U.S. lead in tax policy and regulation. Some experts say Canadian tax laws meant to encourage small business have the opposite effect of discouraging businesses from becoming bigger, using economies of scale to become more productive.Others worry increased productivity will lead to a fall in other Canadian advantages that will contribute to a lower quality of life.

ButRobert Gagn, director of the Centre for Productivity and Prosperity at the University of Montreal's cole des hautes tudes commerciales, takes a fresh view by comparing productivity gains in North America with those in Europe, where social programs, taxes and regulation often exceed those inCanada.

"In Western Europe they have big productivity gains, even bigger than the U.S., much bigger in fact than the U.S. over the past 25 or 30 years,"said Gagn.

Gagnand his team attribute the difference almost entirely to competition. Whereas businesses in Paris must go head to head with businesses in Berlin, Canada's relatively sparse populationina thin line just above the U.S. border means that a company in Quebec can virtually ignore a competitor nearly 4,000 kilometres awayin Calgary, he said.

Productivity requires competition: expert

The HEC centre's research shows that while Europe goes out of its way to encourage competition, Canada and its provinces do the opposite, "with a culture of protecting Canadian businesses no matter what,"Gagnsaid.

He points to the near-monopoly power of Air Canada that he says has too much influence on governments of whatever stripe in Ottawa. For example, Gagnsuggests that relationship has repeatedly blocked a high-speed rail link between Quebec and Ontario that would have given the Canadian airline a run for its money.

As an alternative, he said policy makers should instead look atCanadian companies like Couche Tard(that operates many places under the name Circle K)that have no trouble competing, and leading the way, on the world stage.

WATCH | Quebec using workers as young as 11 to fill its job gaps:

Quebec turns to youth workers to fill shortages

2 years ago

Duration 2:01

Some Quebec businesses are hiring employees as young as 11 to fill labour shortages. The province has no minimum working age, but shifts can't interfere with school and guardian approval is required for employees under 14.

Gagnagreesthe well-knownshortage of workers in places like Quebec's Eastern Townships should be motivating businesses to increase productivity by investing in better machinery and methods. He said that in the service sector, nowsuffering from severe labour shortages, that is harder.

"You cannot replace a maid in a hotel room by a robot," saidGagn.

And rather than expecting individual businesses to lead the way, he said he thinks governments, especially provincial governments, should ratchet up competition between provinces.Gagnsaid that is what provincial leaders should be doing when they meet instead of just talking about how they can get more tax money from the federal government.

"I think they should engage in a discussion about barriers to commerce and people within the country," saidGagn. "There's more mobility and less barriers to commerce between European countries than Canadian provinces."

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