Empty Seats: Why Labour Shortages Plague Small and Medium-Sized Businesses and What to Do About It

Small and medium-sized enterprises (SMEsConsistent with Statistics Canada’s definition, we consider businesses with one-to-99 paid employees as small and 100-499 paid employees as medium-sized.) play a vital role in job creation and economic growth. Their contribution to Canada’s gross domestic product was, on average, 53 percent a year between 2014 and 2018. Canadian small and medium-sized businesses employed 14.3 million workers in 2022, representing 84 percent of all employees.See Statistics Canada Table: 14-10-0068-01. However, Canadian SMEs often report that they face hiring challenges that limit their growth prospects and affect their access to capital. And SMEs’ labour shortages have worsened post-pandemic. Nearly two-thirds of small businesses (63 percent) cited a shortage of qualified candidates as the primary cause of their labour woes (CFIB 2021). This Commentary analyzes the severity and causes of labour shortages in Canada post-COVID, and highlights the importance of addressing wage mismatches to remain competitive in attracting and retaining employees. The study also provides recommendations to mitigate labor shortages through complementary strategies such as optimized utilization of immigration, better human resource practices, and more investment in automation, highlighting the roles that both employers and governments can play.