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As calls to reform Canada’s Temporary Foreign Worker (TFW) program mount, economists say changes to the program made by the federal government in 2022 have made it more difficult for young Canadians to find employment.
“It’s absolutely contributing to the record low employment rates that particularly younger people are facing, specifically 14 to 19 year olds,” Mike Moffatt, senior director of the Smart Prosperity Institute, said in an interview with Yahoo Finance Canada.
“Outside the pandemic, this is the worst summer on record for youth employment. A lot of that is that businesses – your coffee shops, your ice cream places – aren’t hiring those 16 and 17 year olds, because they’re hiring either temporary foreign workers or older college students instead.”
In April 2022, the federal government expanded the Temporary Foreign Worker program in order to, it said at the time, “ensure it continues to meet the labour market needs of today.” The government noted that the Canadian labour market was tighter than before the pandemic, and that “much of the unmet demand is in low-wage occupations”, pointing out that the highest vacancies were in accommodations and food services, healthcare and social assistance and retail trade.
Before 2022, employers were allowed to bring in temporary foreign workers in the low-wage occupation stream only if the unemployment rate in their local region was less than six per cent. Most sectors were also restricted to having 10 per cent of the workforce be low-wage temporary foreign workers. In 2022, Ottawa scrapped the unemployment rate restriction, and raised the workforce limitation for the percentage of low-wage TFWs allowed to 20 per cent. For seven sectors, that limit was raised to 30 per cent.
“That was before the pandemic reopening happened. Now, the labour market is slowing. We have far fewer job vacancies because of the impact of the Bank of Canada rate hikes, which are slowing down the economy. And unemployment is now at 6.4 per cent, instead of the 4 (per cent) region,” economist Armine Yalnizyan said in an interview with Yahoo Finance Canada.
“The chickens have come home to roost.”
Criticism mounts as low-wage stream approvals rise
Use of the non-agricultural low-wage stream has surged since 2022. In the first year since the changes were introduced, the number of approved TFW positions in the low-wage stream more than doubled. Government data show that more than 83,000 low-wage TFW positions were approved in 2023, compared to about 16,000 in 2016.
This month, Employment Minister Randy Boissonnault met with Canada’s largest business associations to outline actions that the government is implementing to reduce TFWs in Canada. Boissonnault also told CBC News that the government is considering blocking the low-wage TFW stream. The Globe and Mail reported this week that the federal government is planning to sharply cut the low-wage stream back to pre-pandemic levels amid the criticism of the growing use of the program.
As usage of the program has surged, so has the youth unemployment rate. As of July, the unemployment rate for Canadians between the ages of 15 and 24 was 14.2 per cent, the highest outside the COVID-19 pandemic. Unemployment for core-age workers – those between the ages of 25 and 54 – was 5.1 per cent in July.
When employers say they can’t find any Canadians to do the job, the part of that sentence that is always missing is ‘at these wages.’ People will not work at those wages, but there are people from overseas that are desperate and will.Armine Yalnizyan, economist
While Moffatt and Yalnizyan note that there aren’t comprehensive studies about the impact the program has had on wages, both expect that it has suppressed them.
“When employers say they can’t find any Canadians to do the job, the part of that sentence that is always missing is ‘at these wages’,” Yalnizyan said. “People will not work at those wages, but there are people from overseas that are desperate and will.”
The changes to the TFW program also came amid higher inflation in Canada. In June 2022, the Consumer Price Index peaked at 8.1 per cent. Moffatt says that likely contributed to the government’s decision to introduce the changes.
“What the program basically does is prevent wage increases, because it gives employers this way out. I think that was part of what the government had in mind,” Moffatt said.
“They were worried about inflation and worried about the cost for firms. One of the ways to slow down inflation is to slow down wage growth, because those wages tend to get passed along to the end consumer… I do think the federal government had that in mind, as this would be a program to help slow the rate of inflation, which I’m sure it did somewhat, but it is on the back of young workers.”
‘Let the market sort out wages’
Going forward, Yalnizyan says the government needs to pull back the intake of TFWs, as well as international students, which she says “are a de facto low-wage worker group.” She would also like to see an end to the practice of tying a work permit to a single employer, as in the TFW program, and instead have permits tied to a region or a specific industry with significant labour shortages.
Yalnizyan also notes that the TFW program makes up just a fraction of the people entering Canada on a temporary basis, and “we need much better pathways to permanent residency for everybody that comes here as a temporary foreign worker, not just through this program.”
Moffatt would like to see the low-wage stream eliminated over time, but notes that it would have to happen over a period of between 18 and 36 months.
“I don’t think you can do it right away, simply because companies have incorporated this into plans. You need to create some time for adjustments,” he said.
“But I don’t think it’s necessary to be bringing in coffee shop workers and people to work in ice cream shops. I think we should let the markets sort out wages.”
Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.
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