It is now a given that Canada is facing a labour crisis because of the scarcity of skilled workers. This supply issue threatens our economic growth and in particular puts our future at risk as a global economic leader. Recent studies by the Organisation for Economic Co-operation and Development projects Canada will have the worst performing economy of 38 advanced countries over the next 40 years (2020-2060). The key reason is that our labour force is only 77% as productive as U.S. workers and we lag behind other important economies such as France, Germany, the U.K. and other European countries[1].
Certainly, the lack of any national industrial strategy or other form of leadership from government does not help the situation. However, the reasons we perform so poorly are the fact that in aggregate we use less capital and technology, are less innovative and lack the necessary economies of scale to attract the requisite investment to move to the head of the pack. We should not rely on the government to lead the way to address this issue but rather we need industry leaders to step up and find ways to capitalize on the inherent advantages we have as Canadians and to move us from last to first in terms of productivity.
Let’s consider the problem in light of the immediate risks we face as an investment target. Canada has more than ample natural resources and could easily become a world leader in the production of critical minerals and the related downstream products. However, given the issue of relative labour scarcity it is obvious that there is a finite limit to the amount of development that can take place in what arguably are our core industries (mining, oil and gas, and the broader power sector). It is highly likely that many projects will be delayed or cancelled outright because there simply are not enough people to build the projects that are necessary to drive the economic growth in these areas. Moreover, given that a lot of the important resources remain in the remote regions of the country, we lack the necessary infrastructure to access those resources and bring them to market.
Thus, we have a compound problem because we lack the capital and the labour to build the infrastructure. If we dig into the issue we find that there is an interesting multiplier effect that could be exploited if we could figure out how to move up productivity to be on a par with our neighbours to the south. Given the similarities in the available workforces there must be a viable solution that can transform our economy from an ‘’also ran’’ to a world leader. Our workers have the required education and access to the necessary skills training. So, the solution lies in understanding the productivity issue and making the required investment to improve things.
Let’s examine the issue of productivity in the construction industry. Certainly, labour costs for megaprojects in Canada have escalated to the point that many potential investors contemplate moving capital to other countries where they can get more bang for the buck. Yet even with our wage rates, we know that there is potential to more than double the current rate of productivity. To do this we need to focus on the real drags that reduce productivity and to tackle and fairly address the issues that make Canada less competitive in this area.
Absolutely there is a need to invest in innovative technologies to enhance productivity. In terms of construction labour this could mean technology for tracking materials on the site, ensuring workers (including supervision) have the best available tools and equipment and are well-trained in their use and that there is a readily available support system to ensure that these tools and equipment are maintained and serviceable. However, we argue that there is a tremendous amount of work on the “soft” side of managing the workforce that can yield quantum degrees of improvement. These require an investment in management but yield such high returns that those smart enough to take these steps will be able to compete in this market regardless of the perceived labour shortage.
In part we also need a collective voice that demands changes in the labour models that cling to antiquated notions of trade jurisdiction while respecting the need for expertise in certain areas of application. Eliminating the artificial boundaries around trades alone will enhance productivity substantially. However, with this there is a need to teach workers how to work in a multi-trade cooperative environment. There is corresponding need to design procure and manage in a way that takes advantage of multi-trade crews. Think Vertically instead of horizontally. It makes little sense to have workers stand by idly while waiting on others to complete their given tasks.
Obviously, we need more labour supply with begins with more apprentices across all trades. In saying this we also should recognize that in an environment that allows cross trade learning there is a greater incentive for people to participate in mentoring, teaching and learning and an improved result in terms of the skills acquired. Trades people take pride in their expertise and have an innate desire to learn more.
Those that would dismiss this non jurisdictional environment and cross skilled trades person notion are simply trying to defend an approach that cannot survive in Canada if we are to truly address the productivity problem. However, to facilitate the required changes we may need some reform of current labour legislation and legislation governing skilled trades. As long as our governments (both provincial and federal) continue to cater to the interests of certain labour organizations rather than to truly understand the broader picture we will be handcuffed and the problem will persist.
Equally importantly, project owners need to invest in understanding the root causes of our productivity issues and be willing to adopt innovative approaches to managing their projects rather than continuing to subsidize these antiquated approaches that perpetuate the productivity problem. For example, Project Labour Agreements, which on the one hand may guarantee some degree of labour peace, create a monopoly for the building trade unions that dissolve any incentive to actually try to address issues with productivity. Similarly, institutional arrangements like the near monopolies we see across the broader power sector (on the publicly owned side of the sector e.g. EPSCA in Ontario, Manitoba Hydro, etc.) dissuade any potential investment in adopting leading edge approaches to project development.
Another soft issue that can be addressed is making improvements in management itself. Instead of focusing on the shortage of trades’ people our first priority perhaps should be on addressing the lack of experienced supervisors and superintendents to provide the required leadership that will help drive up productivity. It may seem cynical but our experience is that many contractors simply refuse to make the investment in supervisory and management training because it is an expense they cannot recover directly from the client organizations.
It is an absolute given that productivity is positively correlated with the quality of management and specifically with the quality of the front-line supervisor. While this correlation is difficult to translate into a precise mathematical formula in order to ascertain a measurable Return on Investment we can deduce that a good supervisor and a solid management team can realize productivity improvements in the double digits (i.e. in excess of 10% and in many cases far in excess). In conjunction with these improvements these teams will experience less turnover, less absenteeism and fewer disputes resulting in a far more cost-effective performance.
Let’s put this in practical terms. We can suppose that any improvement in productivity translates directly into a savings in terms of the required front-line labour. If a job requires 100 people to perform (according to the assumptions made by the engineers), then one can deduce that with a ten percent improvement in productivity a project would need ten less people to do the work in the same amount of time. This will also have a quantifiable improvement in the schedule as there would be fewer delays in waiting to have enough people to complete the work. This further results in a reduction in labour costs. When we take this kind of simple reasoning and apply it across several elements on a project there is a compounding or multiplying effect that results in incredible savings and likely can represent the difference between a viable project and one that has to be shelved because there is not enough available people to complete the work.
The importance of focusing on productivity as the priority in managing our supply issues cannot be overstated. By addressing productivity, we are addressing the fundamental problem that is placing Canada’s overall competitiveness at risk. We also simultaneously create a marketplace wherein there are opportunities for greater participation of people who have been shut out of jobs in the construction industry and in the resource sector. However, we cannot move forward of we insist on maintaining the current labour relations systems that encourage trade monopolies and stand as impediments to innovation and investment.
[1] https://bcbc.com/insights-and-opinions/canadas-productivity-performance-over-the-past-20-years