Labour Market | The Canadian Encyclopedia


Labour Market

The labour market is a generalized concept denoting the interaction between the supply (number of persons available for work) and the demand (number of jobs available) and the wage rate.

Labour Market

The labour market is a generalized concept denoting the interaction between the supply (number of persons available for work) and the demand (number of jobs available) and the wage rate. Labour-market analysis is complicated by the need to consider not only the short-term supply and demand for labour, but their allocation among regions, occupations and industries. In addition many institutions influence and regulate the distribution of workers. This has led to the development of a number of different analyses of the labour market, among them the neoclassical analysis, the radical analysis and the institutional analysis, the latter two forming what has become known as the "segmented labour market" model.

The many labour markets in Canada are indistinctly divided and sometimes overlap. The most obvious types are geographical and occupational. The market for unskilled labour would normally be the local area, while that for highly trained professionals would be international. However, there are exceptions. Canada has been importing agricultural workers from Caribbean countries rather than paying wages and providing working conditions adequate to induce Canadian workers to accept jobs in this seasonal industry.

By contrast, because of the surplus of trained teachers in most major urban centres, school boards rarely need recruit beyond the local area. In this sense the size of the labour market is determined by worker mobility - the ability and willingness of workers to move from one labour market to another, occupationally as well as geographically. To complicate matters further, a significant number of firms, particularly large ones, do not hire on the open market except to fill low-level positions or "entry ports." Otherwise their jobs are filled from internal labour markets through promotion.

Legislation may also affect how people choose or are chosen for jobs; eg, lawyers and doctors are restricted from practising within a province unless they are certified by that province. Under current immigration laws, subject to some restrictions and to some exceptions under the North American Free Trade Agreement, employers may not seek workers outside Canada unless they can demonstrate that there are no qualified personnel available in Canada. Some union agreements stipulate that employers may not hire from outside the local union. Various professions and technical jobs require certificates attesting to an individual's training, eg, a university degree or a journeyman's certificate attained by apprenticeship.

The total supply of labour is determined by the size of the adult population, defined statistically as all those 15 years of age and over. Only a portion of the potential LABOUR FORCE actually participates in the labour market, the main determinants of participation being age and sex, economic conditions, social institutions and attitudes. Many young people, until their mid-twenties, attend school or training institutions, and participation declines rapidly as people approach and pass the age of 60.

The participation rate of women, particularly those between the ages of 25 and 64, has traditionally been much lower than that of men, although this is changing as more married women enter the labour force. The increasing participation of WOMEN IN THE LABOUR FORCE has been attributed to changing social attitudes, declining birth rates and family size (which may be a consequence rather than a cause), higher educational levels, growing availability of jobs, the need to maintain family income as male real wages decline and other economic pressures.

The total labour supply is not evenly distributed among regions or even subregions, nor between rural and urban labour markets. Its size in any local labour market is affected not only by the size and participation rates of the local population and the rate of natural increase, but also by migration into or out of markets. The rate of migration into or out of a labour market varies directly with economic opportunities. The relative growth of the labour force in different regions has reflected Canada's economic development. In the early 20th century, the advent of the wheat economy brought explosive growth to the Prairies. Later, expansion was concentrated in central Canada but, more recently, shifted again to the West until the downturn in the western economy in the 1980s. Since then, there has been some relative shift from the prairies to British Columbia but otherwise no major trend in the labour force distribution.

For practical and administrative purposes and because of geographical limits, Canada has been divided into 71 economic regions in the labour-force survey; but the 470 Canada Employment Service areas, within each of which was a Canada Employment Centre in 1991, were a better measure of the number of local labour markets, except that major urban areas had a number of centres, which may have resulted in an overestimation of the number of markets. Since then, the Department of Human Resource Development, as the former Employment and Immigration Canada was renamed in 1993, has increasingly relied on electronic (VDT) kiosks for the provision of employment information and services. This, in effect, treats the Canadian labour market as if it were national.

Occupationally, it is possible to make a rough estimate of the flow of new workers with certain occupational skills into the labour market by monitoring the output of education and training institutions, formal on-the-job industrial and apprenticeship programs, and the occupational skills of immigrants. Such an estimation would be imprecise, however, because it does not include informally acquired skills and workplace training, which are not normally recorded, and does not record the number of workers employed at jobs that do not utilize their actual skills. According to a 1989 study, one-third of university graduates, 40% of college graduates and a third of those with high-school diplomas were employed in jobs that did not utilize their qualifications.

There is also no accurate record of the skills lost to the country by EMIGRATION. The actual occupational distribution of the labour force is therefore more accurately determined by measuring the demand for skills, rather than the supply of them. The prolonged reliance upon immigrants for certain skills and repeated complaints of employers in periods of low unemployment of a shortage of available tradesmen are evidence that the domestic supply of certain skills has fallen behind the demand.

Market Demand for Labour

The demand for labour is indirectly determined by the demand for the goods and services that labour produces. Demand for labour has geographical and occupational dimensions, but is also affected considerably by the industrial distribution of demand and the organization of industries. Geographically, the demand for labour will not normally equal the geographical distribution of supply. Consequently, differences in both unemployment rates and in average wage levels for essentially similar jobs will often exist.

According to the industrial distribution of the employed labour force, the difference between male and female distribution is again quite pronounced, primarily because of differences in the occupational composition of the demand for labour in the various industries. The figures reveal more rapid growth of employment in the service-producing industries, similar to the occupational distribution trend towards increasing numbers of white-collar workers.

Wages and Unemployment

In an economist's ideal model of the labour market, wages would adjust to eliminate all unemployment and, over time, labour would move between regions, occupations and industries until real wage rates were equalized when adjusted for differences in skills, education and training, and nonmonetary costs and benefits of individual working environments. In fact, such ideal conditions do not exist and disparities in the supply and demand for labour persist, particularly between regions and between jobs with similar skills, in training requirements and working conditions and in wide differences in unemployment rates between occupations and regions. Analysis of these disparities is extremely complex, but regional disparities reflect how far the Canadian situation falls short of the equilibrium of supply and demand posited by the economic theory of labour markets.

The concept of a labour market must be considered a complex and imperfect tool for analysing the system by which the total supply of Canadian labour, including employers, managers and the self-employed, is allocated among the total of employment opportunities in the economy.

Participation Rates

Defined as the proportions of people within any given age/sex group that participate in the labour market, participation rates have been undergoing quite marked changes in recent years as a larger percentage of women enter the market. In 1961 less than 30% of Canadian women were in the labour market; by 1996 this had risen to almost 60%, mainly as a result of fewer women leaving the labour force for marriage or for raising families. Male participation, on the other hand, has remained relatively constant despite a steady decline in participation by males 65 years of age or older as a result of improved retirement provisions. The participation rate of males 15 years of age or older has remained considerably higher than the female rate despite this trend, standing at 74% in June 1996 compared to the female rate of 58.7%.