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Canadian businesses struggling with labour shortages: new BDC study

Worker scarcity to remain for at least a decade
05/09/2018

September 5, 2018, Montréal— Over 39% of SMEs are struggling to find new employees and the problem will not improve for at least a decade, according to a new study released today from the Business Development Bank of Canada (BDC).

“Labour shortages are affecting growth for many Canadian businesses, and this has an impact on Canada’s competitiveness,” says Pierre Cléroux, Vice President, Research and Chief Economist at BDC. “Businesses are being forced to refuse orders or delay deliveries. To help deal with the impact, entrepreneurs should think about hiring from under-represented segments of the population, such as younger or less-qualified workers, retired workers or newcomers to Canada.”

The study, based on a survey of 1,208 entrepreneurs, finds a direct link between labour shortages and slow sales growth. Firms affected by labour shortages are 65% more likely to generate low sales. The situation is most dire in Atlantic Canada, British Columbia and Ontario with manufacturing, retail trade and construction the hardest hit sectors.

Labour shortages are hurting SMEs, mainly mid-sized firms

Nearly six in 10 entrepreneurs said the labour shortages mean existing staff must work more, while 47% said they have had to raise wages. The indirect costs of labour shortages are no less damaging. For example, business owners are forced to spend more time on the shop floor because of a lack of workers, which means less time spent on developing the business. This holds business back and hinders growth.

The impact of worker scarcity also differs by size of business—it is less acute for very small and very large firms. The severity of hiring challenges peaks for firms with 20 to 49 employees and then drops for firms with 100 or more employees.

The study also describes a list of strategies that can mitigate the impact of labour shortages on business, which include the following:

  • Developing an employee value proposition to make the business more attractive to existing and new employees. Using best marketing practices to promote the business as an employer of choice will become increasingly important to retain top performers and attract new talent.
  • Formalizing HR policies to put the business on a more solid footing. Strong HR policies facilitate hiring, improve retention and reduce legal and reputational risks, among other benefits. Our research shows that firms with strong HR policies also outperform their peers.
  • Hiring workers from under-represented segments of the labour force, notably newcomers.
  • Improving operational efficiency, using such tools as key performance indicators, dashboards and process maps, automating processes and leveraging technologies.

Study highlights:

  • 39% of Canadian small and mid-sized businesses (SMEs) are already having difficulty finding new employees and the problem will not improve for at least a decade
  • Labour shortages are slowing sales growth: the most affected firms are 65% more likely to generate low sales
  • The problem is most acute in Atlantic Canada, British Columbia and Ontario
  • The hardest hit industries are manufacturing, retail trade and construction

About BDC

BDC is the only bank devoted exclusively to entrepreneurs. It promotes Canadian entrepreneurship with a focus on small and medium-sized businesses. With its 123 business centers from coast to coast, BDC provides businesses in all industries with financing and advisory services. Its investment arm, BDC Capital, offers equity, venture capital and flexible growth and transition capital solutions. BDC is also the first financial institution in Canada to receive B Corp certification. To find out more, visit bdc.ca.

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