What's a worker’s market? Job quality and labour market tightness

In a tight labour market, job-seekers gain bargaining power and leverage it into greater job quality—at least, that’s the conventional wisdom.

Michael, LMIC Economist, presented findings that reveal a weakened relationship between labour market tightness and job quality indicators following the pandemic. Labour market tightness coincided with growth in real wages for only a portion of workers: those in low-wage jobs requiring little education. Several factors—including labour market composition, worker and employer behaviour, and labour market practices—have contributed to the absence of worker benefits. These will be investigated further in future work.

1. What's a worker’s market?: 2024.05.31 Michael Willcox, Economist Job quality and labour market tightness

2. Have workers benefitted from Canada’s tight labour market? Real wages​ Work benefits​ Job security​ Satisfaction​ Hours worked​ Skill match​ Duration of unemployment​ Lower worker requirements​ Other dimensions of job quality (autonomy, prospects, work environment…) are difficult to measure given data limitations​

3. Have workers benefitted from Canada’s tight labour market? Motivation: Workers are invested in this relationship between job quality and labour tightness Job quality is a core piece of LMI for workers and policy makers to understand the changing nature of work in tight labour markets Preliminary findings do not align with the conventional wisdom: Tight labour markets should increase bargaining power for workers to extract more benefits and increase job quality across the labour market Evidence: rising labour demand across labour markets not met with adequate real wage growth 

4. Conventional wisdom: tight labour markets benefit workers Increased job quality (better pay and work conditions) Labour market tightness increases as the demand for workers outpaces the supply Increased competition between firms for labour leads to rising b argaining power for workers Labour Market Tightness = Unemployment/Vacancies Unemployment proxies labour supply Vacancies proxies labour demand

5. Findings don’t support conventional wisdom: Offered real wages not responding to growth in labour demand

6. Preliminary Findings Real wage-market tightness relationship: overall weak (but positive) Negative shift post-pandemic Strong negative relationships exist (health, public admin, education) Low-pay and low-education jobs have strongest positive relationship (but still moderate) generally Indications of a weak relationship between labour market tightness and job quality

7. Preliminary Findings Job security and market tightness have more dependable relationship Permanent and temporary layoffs decrease as tightness increases Permanent positions more common as tightness increases Involuntary part-time work less common as tightness increases Indications of a weak relationship between labour market tightness and job quality

8. Preliminary Findings Job leavers and job searchers have less consistent relationship with market tightness Unemployment spells have remained elevated during post-pandemic market tightness Dissatisfied leavers have seen shift in relationship post-pandemic, now increasing as the labour market tightens Indications of a weak relationship between labour market tightness and job quality

9. Overall, a weak relationship exists between real wage and labour market tightness

10. Overall, a weak relationship exists between real wage and labour market tightness

11. Relationship between real wages and labour market tightness reverses post-pandemic

12. Relationship between real wages and labour market tightness reverses post-pandemic

13. Conventional wisdom holds for three sectors Real wage (job quality) Vacancies per unemployed worker (labour market tightness) Accommodation and food services [72] Other services (except public administration) [81] Professional, scientific and technical services [54]

14. The benefits of labour market tightness decrease progressively with higher required education level Real wage (job quality) Vacancies per unemployed worker (labour market tightness) Above bachelor’s degree Bachelor’s degree Post-secondary certificate or diploma High school graduate Less than high school

15. Low-wage jobs seeing more benefits Real wage (job quality) Vacancies per unemployed worker (labour market tightness) Assemblers in manufacturing [95] Labourers in processing, manufacturing and utilities [96] Maintenance and equipment operation trades [73] Other installers, repairers and servicers and material handlers [74] Processing and manufacturing machine operators and related production workers [94] Transport and heavy equipment operation and related maintenance occupations [75]

16. Job loss less likely with market tightness

17. Job loss less likely with market tightness

18. Involuntary part-time work decreasing with market tightness

19. Job security and shorter unemployment spells not guaranteed with recent labour market tightness

20. Explanations to explore: Conclusion: preliminary findings do not find strong evidence for conventional wisdom Limited evidence of real wage gains by occupation, sector, or required education level Strength of the relationship between labour market tightness and job quality is unclear Worker benefits largely absent or muted post-pandemic Generalizing job quality-market tightness relationship seems unwise Key takeaways: Labour market composition change Trauma of job loss (automation, offshoring, labour market scarring) Not enough job mobility (more job transitions = more wage growth) Increasing employer power (monopsony) Labour mobility practices and labour market reform Labour market tightness may be overstated Underemployment/part-time work Wage lags Natural rate of unemployment falling

21. Next steps E xplore labour market tightness relationship with other job quality indicators (lowered work requirements, employee benefits) and sources (online job posting data) Repeat analysis for labour market tightness using more indicators (unemployment rate, vacancy rate, perception of tightness) Control for labour market composition, wage lags, job mobility, firm size and employer power

22. Questions?

23. Appendix

24. Worker benefits weak or absent: Duration of unemployment spells elevated despite labour market tightness Job vacancies Average weeks unemployed Average weeks unemployed (black line) vs vacancies by duration up to 2022 Q4

25. Indicators for workers, employers and market tightness Labour Market Tightness Job Vacancies/Unemployment Unemployment Rate ( ue / e+ue ) Vacancy Rate (v/ e+v ) Employment Rate Participation Rate Unemployment/Employment U nemployment gap O utput gap P erception of tightness Labour churn (job-changing) L abour underutilization Worker Benefits/Job Quality Real Wages Duration of unemployment Reason for leaving or losing job Job security (permanency and tenure) Non-pecuniary benefits Lowered work requirements Job changing Skill underutilization Multiple job holders Involuntary part-time Hours worked Participation Employment Unemployment Retirement Employer Challenges D uration of vacancies BOC outlook survey Canadian business conditions survey BDL business expectations index

26. Real wage declines alongside high inflation: recovering since mid-2023