As companies hire fewer people, Canada will need policies that help create more firms, encourage reskilling and bring in highly skilled immigrants.
The very nature of the Canadian company is changing amid a global revolution in skills and labour sometimes known as the fourth industrial revolution. It will mean some uncertainty and displacement, but with the right policy mix could lead to a stronger economy in the long run. So, how should Canada react to make the most of this opportunity?
Already, we have seen how investments in software, data management, algorithms and other products and services are creating firms that are focussed on creating valuable assets. These firms tend to rely more on investing in software and equipment than in labour – what economists call a capital-intensive firm.
This is a critical trend in Canadian employment, because these companies typically pay a much smaller workforce greater sums of money. In fact, there is an established trend that began in the late 1980s, with start-ups all the way up to mid-aged firms (6 to 10 years in age) hiring fewer workers. In 1987, both relatively young firms and established firms accounted for one-third of all employment in the United States. Today, those same companies, while often having larger capitalizations, sit at just above 20 percent of national employment.
Looking forward, the “intangibles” economy – that is, an economy where intangible assets like intellectual property, brands, design and data are favoured over physical assets – will favour this kind of company approach. Traditional industries that used to be significant engines of employment, such as construction, energy and infrastructure, must adapt themselves to the capital-intensive model simply to remain competitive. At the same time, recent studies from the OECD suggest that 14 percent of jobs in member countries are already highly automatable (that is, automated and not requiring human effort), while another 32 percent will be affected by further technological development.
Left unchecked, these accelerating trends will further widen the gap between the economic haves and have-nots. We can expect a steep decline in the absolute share of wealth held by lower-skilled workers and a meteoric rise in the wealth of workers with highly valued skills. At the same time, Canada itself could become an economic have-not nation. If we cannot find a way to create more capital-intensive firms to offset the lower number of employees per firm, unemployment and underemployment could lead to a weaker federal tax base, exacerbating what is an already fragile fiscal position.
In this scenario, policy-makers will have to walk a tightrope between competing interests. On one hand, Canada’s aging population and shortage of highly skilled labour requires an aggressive immigration policy to maintain economic growth. On the other, we must brace ourselves for a wave of job changes as artificial intelligence displaces some jobs that involve significant but routinized tasks.
Further complexity arises when lower-skilled jobs are displaced while significant immigration is pursued; here, governments must avoid adding more workers into the shrinking pool of remaining jobs that require less advanced skills. This equation will become even more complex in a world where high levels of immigration are morally necessary for non-economic reasons, such as cases of displacement due to the impacts of climate change. Given these complexities, what is the appropriate policy response to the rise of capital-intensive firms?
First, Canada must think about how it will create more firms if it wants to create more jobs. Core to this issue will be continuing to improve Canada’s business competitiveness in core areas like taxation and regulation while creating the necessary frameworks to streamline the participation of Canadian labour in global labour platforms, such as freelancer, crowdworker and fiverr.
Second, Canada must make the truly massive investments needed to improve skills and support retraining to ensure the current labour force is able to take advantage of these opportunities in the future.
Third, even with upskilling and reskilling investments, there will still be niche sectors with significant shortages of highly skilled labour. This is where immigration comes in. Immigration policies should not only encourage highly skilled labourers to come to Canada, but it will be vital that governments make it significantly easier for new immigrants to have their professional credentials recognized here.
The goal is straightforward: prepare Canada for the fourth industrial revolution by ensuring its workforce has enough of the skills needed to fuel net growth of capital-intensive firms, fueled by policies that encourage reskilling and immigration. If Canada can get the balance right, we could also see greater demand for lower-skilled workers, thereby driving up their value.
That’s a big if. As one of the most educated countries in the world, Canada has a real opportunity to develop a workforce capable of exploiting the fourth industrial revolution. In order to do so, it will require a significant and speedy change in government policy, something Canada hasn’t proven itself adept at doing.
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