The unemployment rate in Alberta and British Columbia was accelerated over the last decade by changes to federal government policy, which made it easier for employers to hire temporary foreign workers (TFWs), says a recent C.D. Howe study.
“A temporary foreign worker program is unlikely to be a comprehensive solution to labour shortages,” said Dominique Gross, a professor in the school of public policy at Simon Fraser University.
“Although there are clear benefits to the economy if short-term excess labour demand is filled as quickly as possible, the costs of a weakly designed TFW program can be quite high in the medium term.”
Gross came to this conclusion in a recent report that was published by Toronto-based C.D. Howe Institute.
In the report, titled Temporary Foreign Workers in Canada: Are They Really Filling Labour Shortages?, Gross said the federal TFW program clearly has the capacity to generate adverse effects, which need to be minimized by regulating employers.
Gross found that between 2002 and 2013, the federal government eased the hiring conditions of TFWs several times. These policy changes were a response to a reported labour shortage in some occupations, especially in western Canada.
Canadian employers who want to hire TFWs must obtain a Labour Market Opinion (LMO) from Employment and Social Development Canada (ESDC), which assesses the impact that hiring TFWs may have on the Canadian labour market.
The LMO requires the employer to fulfill certain conditions that are meant to ensure domestic workers are not affected adversely by the hiring of TFWs.
It is also required by Citizenship and Immigration Canada (CIC) before the TFW can apply for a work permit.
To assess the impact of federal government policy, Gross focused on reforms in Alberta and B.C. that aimed to accelerate the process of processing LMO applications and reduce the backlog in certain occupations.
As a result, the number of TFWs employed in Canada jumped to 338,000 in 2012, from 101,000 in 2002.
Gross said these policy changes occurred even though there was little empirical evidence of labour shortages.
More importantly, when there were large backlogs in LMO applications in 2007, the unemployment rates for domestic workers with only some high school education was 7.3 per cent in Alberta and 8.4 per cent in B.C.
In September 2007, an Expedited Labour Market Opinion (E-LMO) pilot project was introduced in Alberta and B.C., in response to pressure from employers.
When the E-LMO policy was fully in place in 2009, the unemployment rate for these low skilled workers hit 13.4 per cent in Alberta and 15.5 per cent in B.C.
Domestic workers with high school graduation experienced similar changes in unemployment rates, although at slightly lower levels.
In 2009, total unemployment for all workers in Alberta was 6.6 per cent and in B.C. it was 7.7 per cent.
In addition, Alberta and B.C. generally experienced more variability in unemployment than the rest of Canada.
For example, before 2007 unemployment rates in Alberta and B.C. declined by an average of 2.9 per cent in the rest of Canada this figure fell by one per cent.
After 2007, unemployment increased by 3.4 per cent in Alberta and B.C., compared to 1.4 per cent in the rest of the country.
As a result, on average, the variation in the unemployment rate during the whole period was 2.3 per cent in the rest of Canada and 6.2 per cent in Alberta and B.C.
This finding suggests that the E-LMO project potentially accelerated the rise in unemployment by about 3.9 percentage points in Alberta and B.C. between 2007 and 2010.
Gross recommends that fees should be increased for employers, who use the TFW program, to cover administrative costs and provide a strong incentive to search for domestic workers to fill job vacancies.
There should be a cap on annual TFW entries, in order to influence firms’ and workers’ search efforts until better information and a different fee structure is put in place.
She also recommends that more information about the state of the labour market is required to make sure the TFW program does not adversely affect domestic workers and ensure employers are in compliance with government regulations.
These policies would encourage employers to attract and train domestic workers for jobs that are permanent so that the labour market would return to a more balanced condition in the medium term.