Supply of human resources
Supply of labour
The supply of labour is the number of workers willing and able to work in a given occupation or industry for a given wage.
The supply of labour varies between countries and regions within countries and is affected by demographic change.
Demography is the study of the size, growth, age and geographical distribution of human populations.
The process of workforce planning will be constrained by the availability of labour. The supply of labour dictates the future availability of workers. So what determines the supply of labour? We can split these into national determinants and local determinants.
Economists define the supply of labour as a stock, which increase or decreases according to a number of factors:
- The birth rate: the ratio of live births in an area to the population of that area; expressed per 1000 population per year
- The death rate: the ratio of deaths in an area to the population of that area; expressed per 1000 per year
Note: The ratio of birth rate to death rate (the net birth rate) affects the supply of labour because those countries with a high net birth rate, such as many developing and emerging economies, will in the long run have a larger supply of labour.
India, for instance, has witnessed a five-fold increase in population over the last 100 years and is expected to surpass China's population by 2050.
- Net immigration rate: the difference between the number of persons entering and leaving a country during the year per 1,000 persons. An excess of persons entering a country is referred to as net immigration; an excess of persons leaving the country as net emigration. The more mobile labour is internationally, the greater the potential supply of labour. This is an increasingly important factor given the reduction in barriers in areas like the European Union, where there is complete freedom of movement for people and goods.
- The retirement age: retirement is the point where a person stops employment completely. Retirement may be a legal requirement at a certain age. However this varies from country to country although it is generally between 55 and 70. In some countries this age is different for males and females and varies between professions. For example in France, the retirement age for teachers in France is thirty eight years after employment began, but it is at the age of 50 for train engineers on the national railway. It is also possible for employees to take early retirement. If the retirement age is raised this will increase the supply of labour.
- At the moment there are four working-age people for every person over 65 in the 27-nation EU. That ratio will drop to two for every person over 65 by 2060. The EU is presently urging governments to increase the age of retirement across the community.
- Education participation: developing economies have imposed minimum school leaving ages; typically 16, and have seen increasing participation rates in higher and continuing education. As more people are accepted into university, the lower the supply of labour.
The supply of labour is affected by additional factors such as the ratio of part-time to full-time employees, the willingness of women to enter, or re-enter,the workforce after having children and the occupational and geographical mobility of labour (the ability, or willingness, of individuals to move between different jobs and regions).
The supply of labour for an individual firm will be affected by the factors affecting a country or region, but will also be influenced by competition between firms in the area and the costs of living in that area.
- Labour mobility: Are employees prepared to move into and out of the area? This may be influenced by the attractiveness of the region in terms of location, climate, infrastructure, communications and beauty. The higher the level of mobility, the greater the potential supply of labour.
- Local income levels: Higher income levels will attract people to an area and may lead to a greater supply of labour. However, firms in high cost regions may find it difficult to attract employees, especially for poorly paid jobs.
Confronting Canadian Labour Shortages in the Coming Decades
Sometime toward the middle of the next decade, and for the first time in at least a century, the number of people willing and available to work in Canada will be smaller than the number of jobs potentially available for them. After that point in time, a general labour shortage - not just in specific geographic areas or for particular skilled trades, but throughout the economy and in all provinces - will become a normal fact of Canadian economic life that will continue for as far ahead as demographers are able to forecast. There will still be unemployed people, but their numbers will be more than offset by unfilled job vacancies. Simply put, the number of young people entering the labour force is insufficient to sustain economic growth in the years ahead at levels that prevail today.
The problem Canada faces is one of demographics. In the 1970s and 1980s, the Canadian economy was restructured to meet the challenge of the entry of the huge baby boomer generation into the employed labour force. With the demographic changes that have taken place since then - a declining fertility rate and declining numbers of future labour force entrants - this design is no longer working. Indeed, continuing to adhere to it threatens Canadians' standard of living, and could lead to unrest, outmigration, and slow-to-nonexistent economic growth coupled with high inflation. Modelling the effects of these demographic shifts on the Nova Scotia economy and society out to 2026 shows that they are likely to be significant, featuring an aging, declining population, dwindling numbers in the traditional labour force ages (15-65), and lower labour force participation rates.
If Canada were facing this demographic challenge in isolation, it might be easier to adapt to the situation. But most of the developed world faces similar challenges. The coming decades will witness a global competition among the developed countries for labour of all kinds, and the problem will only get worse as workforces in rapidly developing countries such as China begin to age.
There are only three generic ways to close the gap between the demand for and supply of labour in Nova Scotia in the years ahead:
- Find more people - that is, increase the population, by raising the birth rate or by increasing migration from other provinces and immigration from abroad. But the birth rate is unlikely to change, other parts of Canada would be facing the same challenge, and immigration from abroad would have to occur at far beyond traditional levels.
- Increase labour productivity at a faster rate than the historical average, by encouraging the growth of higher-paying industries at the expense of low-productivity (largely low-wage) industries, improving business practices and processes, and increasing the skills and education levels of the workforce. But this would only delay the inevitable.
- Increase the labour force participation rate, by encouraging those who have given up working or who have never worked to become employed or by discouraging early retirement and encouraging older workers to remain in the labour force longer - no easy task.
Source: 'Executive Summary: The developing workforce problem'
Atlantic Institute for Market Studies, January 2009