The missing middle

Posted on September 3, 2017 in History – Economy
September 2, 2017.   RACHELLE YOUNGLAI

The economy may be booming, but many middle-class Canadians in their prime working years are facing a future without permanent work. . For a large cohort of so-called “mid-skilled workers,” the unsettling new reality is a series of lower-paying, temporary gigs that bring little financial security. examines why

Paul Monbourquette should be squirrelling away cash for his retirement right now. At 55, the former Stelco factory worker is at the point in life when most Canadians hope to have a decent job and a sizable nest egg.

Instead, he’s working part-time, making significantly less money than he did 10 years ago – and dipping into savings that should be securing his family’s future.

Mr. Monbourquette was 45 when the Stelco plant in Brantford, Ont., shut down, leaving him without a steady paycheque, health benefits and pension contributions. He sent out hundreds of résumés, signed up with temp agencies, went to job counselling and performed tests to prove he could operate a variety of machines even though he had 17 years of manufacturing experience. But the only work he could find was temporary and the pay was often minimum wage. So he took the closest thing to a regular gig that he could find: shift work as a cleaner in a casino.

While other Canadians his age are dreaming of retirement, Mr. Monbourquette isn’t making any plans for the future. He can’t afford to. “It has been a constant adjustment to try and stay close to the lifestyle I had back in the days of Stelco, slowly eating up any savings that I put away,” he says.

He’s hoping that the casino position could one day lead to full-time work, but he isn’t optimistic. He lacks the job skills to move into the upper echelons of the Canadian labour market, which is now on an upswing, creating huge demand for high-skilled workers such as engineers and computer technicians. So rather than edging up the career ladder, he’s being forced to move downward, tapping opportunities at the lower end of the job market, where “help wanted” signs dot the windows of countless restaurants and retail outlets seeking workers for low-paying, entry-level positions.

For workers such as Mr. Monbourquette, what’s missing from the Canadian job market is the once-burgeoning middle tier – medium-skilled jobs such as office support and manufacturing that employees used to be able to work their way into without a lot of advanced education, and which once provided a reasonably comfortable lifestyle. Squeezed out of the middle class, Mr. Monbourquette now risks becoming part of a generation of Canadians who are being left behind as the country’s economy picks up steam and job creation is on a tear. The labour market may be booming, but the growth in employment is in lower- and higher-end jobs – the middle is dropping out.

See Chart: Change in ‘middle skill’ employment by occupation –

The unsettling hole in the labour market has troubling implications for medium-skilled workers – particularly those who are mid-career, like Mr. Monbourquette, and finding themselves caught in a revolving door of low-paying contract and temporary work at a time when they should be earning enough to pay off debts, make investments and save for retirement. (By the time you are in your mid-50s, some financial planners say you should have saved the equivalent of seven times your annual salary in order to live comfortably during retirement.) As this demographic earns less, saves less and becomes more vulnerable to financial shocks, their situation raises questions about the future of Canada’s labour force and the health of the country’s economy.

“We don’t have enough high-skilled people and we have too many of the low-skilled and not enough opportunity in the middle,” says Benjamin Tal, deputy chief economist at CIBC. “That is the widening income gap, which I believe is one of the most significant economic challenges facing Canada.”

Decline of semi-skill jobs

Medium-skilled occupations, or those requiring a few short courses or on-the-job-training, were already disappearing when the U.S. housing market collapsed in 2007 and the ensuing global economic slump wiped out hundreds of thousands of jobs in Canada, including more than 300,000 manufacturing positions, many of which are semi-skilled. Then when metal and oil prices plunged a few years later, thousands of high-paid natural resources positions were obliterated.

Since 2007, semi-skilled or intermediate positions have dropped 7 per cent, according to Statscan data provided to The Globe and Mail. In contrast, high-skilled jobs such as physicians, dentists and engineers have increased 15 per cent. Technical positions including engineering technicians are up 20 per cent and entry-level jobs, including cashiers and cleaners, grew 5 per cent.

See Chart: Employment change by skill level –

Many of these medium-skilled jobs are not coming back. Automation is replacing routine tasks, natural resources are depleting, consumer demands are changing, companies have relocated to places with cheaper labour and weaker regulations, and the Canadian economy has grown accustomed to products from foreign businesses. Technology is advancing rapidly and displacing even more workers.

“It isn’t just that you lose that job. It’s that the job doesn’t exist,” economist Armine Yalnizyan says. The disappearance of mid-level jobs means it is harder for people to work their way up. “If someone wants to climb up, that is not an option … It is harder to climb up and easier when you fall to fall down further.”

That is what happened to Parminder Chauhan. The 51-year old used to work as a jeweller in the Toronto area, where he polished and appraised diamonds. He lost his job when his employer downsized during the Great Recession and hasn’t been able to find a similar paying position that properly uses his skills.

When he lost his job, Mr. Chauhan moved to Brampton, Ont., on the promise of another position as a jeweller. That did not pan out and he turned to temp agencies for work. The temp jobs never became full time and he averaged around three temp jobs a year for 10 consecutive years. His jobs, which ranged from manual labour to operating machines, paid minimum wage or less.

Mr. Chauhan is now working at a warehouse, where he unloads trucks and skids and enters the products into inventory. He earns $14.75 an hour, less than the $15.25, ($19.58 in 2016 dollars) he made in the early 2000s.

Mr. Chauhan takes care of his wife and two children on his income, which will amount to about $32,000 before taxes if he gets 40 hours of work each week this year. “We don’t dare to buy new clothes or new shoes, even,” he says. “I am getting older day by day so it is very hard to get jobs in the middle class.”

The lack of jobs is a cruel irony for workers such as Mr. Monbourquette and Mr. Chauhan, given that they were in the prime of their careers when their professions vanished. They have both tried to acquire new skills. Mr. Monbourquette learned to operate heavy equipment. Mr. Chauhan learned how to drive a truck. But many laid-off workers find it tough – and expensive – to upgrade skills. Even if they are successful in identifying and learning a new skill, they often end up competing with younger and cheaper workers for a spot in their new field.

Ultimately, Mr. Monbourquette and Mr. Chauhan were forced to look for jobs below their capabilities and have been struggling with another unfortunate reality of the current labour market: the rise of temporary and casual work. Since the Great Recession, temp work has grown 12 times faster than permanent employment for so-called prime-age workers, or those between the ages of 25 and 54.

See Chart: Change in prime-age employment –

The prime-age working years used to represent a stable period of employment for this cohort – a time during which many earned their peak wages. But 10 per cent of prime-age workers had a temporary position last year, compared with 8.6 per cent two decades ago.

See Chart: Temporary work as a Share of prime age employment (ages 25 to 54) –

Since the global downturn, every region except the Maritimes has shouldered higher levels of temporary employment, according to Statscan. In Ontario, one of the country’s strongest economies, prime-age workers are finding it increasingly difficult to secure permanent jobs – there were 52,000 fewer of them working in permanent positions last year than there were in 2008.

When businesses closed their doors during the economic downturn, a slew of temp agencies sprung up in their place. In the Brantford area alone, there were 170 in operation after the recession hit, according to a city councillor. The rise of temp work in the area is typical of a broader shift across the country. Employers say they are being hit with rising expenses that are out of their control, such as corporate taxes, hydro, regulatory costs, minimum-wage hikes and the exchange rate. They are also competing with foreign businesses with much cheaper labour. Using temp agencies and contract workers allows businesses to cut labour costs, such as worker-compensation fees and employment insurance – and avoid providing added benefits such as paid vacation and sick days, dental benefits and pension contributions. Temp workers also offer companies greater flexibility: They can hire employees based on rising and falling demand and scale up and down depending on the needs of projects.

“The expansion of temporary employment raises questions about the degree to which [it] is a stepping stone or bridge to permanent employment,” says Leah Vosko, a York University political-science professor and temp-work expert.

Wayne Lewchuk, labour and economics professor at McMaster University, points out that the shift in the labour market reflects a changing mindset on the part of employers. “There is an ideology there that it is better to have temp workers than permanent workers,” he says. “That is very different from the 1950s and 1960s.

“The assumption was the person who started in the mail room would become the CEO of the company. Now, everyone in the mail room is a temp worker.”

Using a temp or contract worker means employers do not have to train or develop staff. “They just find their skills on the market,” Prof. Lewchuk says. “You can get a CEO in a temp agency.”

The rise of temp work does not just affect the person in the middle. It has spread across occupations, including areas that are considered more stable, such as health care and financial services.

Of course, there are workers who prefer a contract to a full-time position. But many others get trapped in temp work, where they never know how long they will have their jobs and are paid less than their permanent colleagues.

Wages are compromised

Across every industry, temporary work pays less than permanent work. The average hourly pay for a temporary employee in Canada was $20.31 last year, compared with $26.55 for permanent employees, according to Statscan. And while the lowest-skilled workers are seeing raises because of mandatory minimum-wage increases, the medium-skilled employees have scant bargaining power.

The cohort with the highest skills, meanwhile, are enjoying the biggest pay raises. Since the global slump, the average hourly wage for senior managers, for example, rose 13 per cent to $41.71, according to the customized Statscan data provided to The Globe and Mail. (Wages are adjusted to 2016 dollars.) That increase is three times higher than what semi-skilled workers received – their average hourly wage rose 4 per cent to $19.42 over the same period.

In other words, those who are already earning higher incomes are seeing their pay increase faster than those in the middle .

“One group at the top is making lots of money, another group at the bottom is not making lots of money. What is happening is that the middle is disappearing,” Prof. Lewchuk says.

CIBC’s Mr. Tal looked at wage growth for high-, medium- and low-income earners from 1997 through 2015. He found that there were gains at the lowest end of the wage spectrum owing to minimum hourly wage raises and gains at the higher end. But the group close to the middle saw “subpar growth throughout the entire cycle.”

“Wages are compromised,” Mr. Tal says. “There are many people coming from the middle and entering this [low-income] space. Their direction is down, not up.”

There is little economic security without a decent-paying job. Accidents, illnesses or other unplanned expenses such as a car repair can become more than an inconvenient setback – it can prevent someone from driving to work, which could lead to a job loss and the inability to pay bills.

“They can be pushed over a cliff pretty fast if they don’t have a financial buffer,” says Elizabeth Mulholland, chief executive officer with Prosper Canada, a poverty-reduction group.

It becomes impossible to save funds for retirement, which has become more essential, given the shrinking number of employer-pension funds.

“It is a serious challenge and I don’t think we have institutionally come to grips with how to deal with it,” says Keith Ambachtsheer, a pension-plan consultant.

This is something 42-year old Myke Childerhose knows too well. A certified welder and truck driver, he has worked more than 100 temp jobs and never had a paid vacation or sick day. He has never received health benefits or employer-pension contributions. He doesn’t take holidays.

When he was 27, he got hit by a car while commuting to work. Because he was a temp worker, he was out of a job and a paycheque for two months. He incurred more debt and eventually turned to payday loans, which he uses regularly because he doesn’t have savings or family members to rely on.

Prone to depression and anxiety, Mr. Childerhose often has to remind himself that it wasn’t his fault he got laid off from his most recent truck driving job, moving cement kilns between Hamilton and Oakville, Ont.

“With the way things have gone in my life so far, I don’t think I would have enough money to do normal things like buy a house or retire,” he says.

Is there a solution?

Prime-age workers such as Mr. Childerhose are in danger of falling even further behind.

The growth in temp work and decline in medium-skilled positions are pressing issues for Canadian policy makers, who over the past decade have faced two economic blows that have exacerbated the situation.

During the oil crash, the federal government boosted funding for training and briefly extended employment-insurance payouts for workers hard hit by the commodities drop. Ottawa recently bolstered the federally administered pension plan and the Service Employees International Union in Canada is rolling out a pension plan that will be portable across jobs.

In Ontario, the government is trying to improve working conditions for temporary workers. It has proposed laws ensuring that temp employees get paid the same amount as permanent staff when they are doing the same job. The province plans to increase the minimum hourly wage from $11.40 to $15 and is experimenting with giving certain low-income earners a guaranteed monthly stipend.

But these changes could have unexpected consequences. A coalition of Ontario businesses is warning that the 32-per-cent minimum-wage hike and temporary-work changes could put about 2.4 per cent of the province’s jobs at risk and hurt the very people the legislation aims to help. Domestic businesses are competing with foreign companies. Technology has made it easier for businesses to run their operations with fewer people. Lower expenses gives consumers cheaper products and services.

One solution is boosting the country’s social safety nets, such as easing employment insurance requirements so more temporary workers can use it. Another is education. But that will only go so far.

“The challenges that we are seeing in the labour market today are a sign of things to come that we need to address,” says Craig Alexander, chief economist with the Conference Board of Canada. “This is a problem that could be a lot bigger in the future.”

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