Businesses’ quest to get more done with fewer workers faces the conundrum of productivity

Even as the world debates whether we are in a recession or not, a persistent shortage of workers is making business leaders and economists struggle to understand one of Canada’s most difficult, and some say most important, economic problems.

Despite the sluggish effect of rising interest rates to combat price hikes, employers across the country continue to complain that they cannot find workers to fill job vacancies. And while many expect Canada’s surging job creation to end soon as recession approaches, expectations for Friday’s latest jobs report suggest that it hasn’t happened yet.

When the job numbers were released at 8:30 a.m., it showed that the economy lost 31,000 jobs in July, leaving the unemployment rate unchanged at 4.9 percent.

According to economic theory, the solution to the problem of labor shortages requires: simply invest in technology and discover how to smooth out production kinks to increase profits without increasing staffing.

productivity challenge

While the theory may seem simple, getting it to work in the real world is a huge challenge for companies, 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, Sundar Pichai, president of Google, announced to employees that parent company Alphabet is launching a plan, called “Simplicity Sprint,” to increase economic productivity.

The announcement is already raising concerns that the policy will hint at upcoming layoffs, and not just at Google where earnings growth has slowed. But economists insist, increasing productivity is not about laying off workers or making every employee work harder.

Google CEO Sundar Pichai has called on employees of parent company Alphabet to increase productivity under a plan called “Simplicity Sprint”. Employees are concerned that it may indicate layoffs. (Brandon Wade/Reuters)

According to collections of books and online articles, productivity is about making yourself a better person by getting organized so you can do more with your busy life and stop all that time wasting. But that’s not how economists determine it, according to Western Audra Pauls University economics professor, who researches Canadian productivity.

“We can think of labor productivity as a kind of added value for each worker,” Paul said.

As Bowlus et al. describe, the reason productivity is so important is that it provides the basis for national wealth and well-being. It also makes individual businesses more profitable. In a collective sense, increasing productivity makes us richer as a country and allows average wages to rise.

Do not pressure the workers

Experts point out that the real increase in economic productivity must occur without employees working longer hours or burdened with the increasing pressure to do more with fewer resources. As we have seen in sectors that have been tried, such as Canadian emergency rooms, burnout causing people to leave their jobs does not lead to long-term efficiency.

As pointed out by Bowlus, productivity increase should be understood as increasing output without increasing inputs. The idea is to do things more efficiently, buy or invent cheaper machines to aid in the job, or create procedures that require fewer strenuous steps.

“Machines can become more productive through technology,” Pauls said. “Workers can also become more productive through more education, improving their skills, or just being able to work better with those machines.”

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NL fills nursing gaps with expensive private agencies

Many nurses in Newfoundland and Labrador are quitting full-time jobs and the province is filling the hiring gap with nurses from costly private agencies, a move some say is unsustainable.

But that doesn’t mean jobs aren’t lost in the process, said Michael Vail, a McMaster University economist who leads a team of researchers and works with Statistics Canada to boost Canadian productivity.

Veall refers to jobs such as a snowman or elevator operator, or occupations that have been phased out by technological advances such as the invention of electricity and refrigeration, or the shift from the human skill of making elevators stop at just the right level to match the floor with automated pushbuttons.

Veall, who once worked in one of Canada’s last remaining elevator operator jobs — pressed buttons and gave a speech at the Skylon Tower in Niagara Falls — says economists are arguing about whether things like self-service check-ins at the grocery store should be considered labor. Actual replacement or enhanced productivity.

Consider the productivity gap

But this controversy has been overshadowed by a much larger debate about why Canada’s progress in productivity is weak compared to similar countries around the world. Statistics Canada data showed that after an unusual record jump in 2020 due to the pandemic, productivity fell sharply in 2021, and continued to decline at the beginning of this year, down from pre-pandemic levels.

Part of the Veall project is finding a way to distribute previously inaccessible data from companies to Canadian economists so they can try to understand where productivity is taking place and the effectiveness of several federal and provincial schemes aimed at increasing employer efficiency. So far, much of the research has relied on foreign data.

Much of the analyzes deplore the gap between Canada and the United States, suggesting that Canada needs to take the United States’ approach to tax policy and regulation. Some experts say Canada’s tax laws aimed at encouraging small businesses have the opposite effect of discouraging companies from getting bigger, using economies of scale to become more productive. Others worry that increased productivity will lead to a decrease in other Canadian benefits that will contribute to a lower quality of life.

German politicians and officials on a hydraulic jack in 2012 with a sign saying the country is a good place for professional workers. Despite stronger social measures and regulations than in Canada, Europe is leading in productivity. (Fabrizio Bench/Reuters)

But Robert Janney, director of the Center for Productivity and Prosperity at the University of Montreal’s Graduate School of Business, takes a new view by comparing productivity gains in North America with those in Europe, where social programs, taxation and regulation often exceed those in Canada.

“In Western Europe, they have had significant productivity gains, even greater than the United States, and actually much greater than the United States over the past 25 or 30 years,” Ghani said.

Gagné and his team attribute the difference almost entirely to the competition. While companies in Paris have to do business with companies in Berlin, Canada’s relatively scattered population in a fine line over the US border means a company in Quebec could almost ignore a competitor roughly 4,000 kilometers away in Calgary, he said.

Productivity Requires Competition: Expert

HEC research shows that while Europe does its best to encourage competition, Canada and its provinces are doing the opposite, “with a culture of protecting Canadian companies no matter what,” Ghani said.

He points to the quasi-monopolistic power of Air Canada which he says has significant influence over governments from any sector in Ottawa. For example, Gagné suggests that the relationship repeatedly blocked a high-speed rail line between Quebec and Ontario that would have given the Canadian airline a run for its money.

As an alternative, he said policymakers should instead look to Canadian companies like the Couche Tard (which operates several venues under the Circle K name) that have no trouble competing and leading the way on the world stage.

Watch | Quebec employs workers as young as 11 to fill job gaps:

Quebec turns to young workers to fill the shortage

Some Quebec companies are hiring employees as young as 11 to fill the labor shortage. The county has no minimum working age, but shifts cannot interfere with school and parental consent is required for employees under the age of 14.

Gagné agrees that the known shortage of workers in places like the Eastern Townships in Quebec should spur companies to increase productivity by investing in better machinery and methods. In the service sector, which is now experiencing severe labor shortages, he said, it is even more difficult.

“You can’t replace a maid in a hotel room with a robot,” Ghani said.

Rather than expecting individual companies to lead the way, he said he believed governments, especially provincial governments, should step up competition between provinces. This is what provincial leaders should do when they meet, Gagné said, rather than just talking about how to get more tax money from the federal government.

“I think they should engage in a discussion about the barriers to trade and people within the country,” Ghani said. “There is more mobility and fewer trade barriers between European countries than in Canadian provinces.”

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