Businesses may fear rising wages, but the jobs boom could be a boon for the rest of us: Don Pittis

With all the consternationaboutthe state of the Canadian economy, you might think we were doomed. But that's not what the actual numbers are telling us.

For instance, just while we were allworrying about Donald Trump and trade yesterday, Canadian exports hit new highs. Despite fear of a collapse in construction jobs and businessanxiety over rising minimum wages, Canada's unemployment rate continues to stick at 40-year lows.

When Statistics Canada releases thejob numbers for May on Friday, private sector economists predict they will show the country's run of low unemployment has continued.

A poll ofthose economists by thefinancial news serviceBloombergshows they expectto see unemployment stayed at thatlow level of 5.8 per centwhile the economy crankedout another 22,000 jobs.

Worker shortage

And while recent economic history shows falling unemployment canbe a negative indicator for the future of the stock market, a shortage of workers that leads to higher wages could benefit the economy long term byputting money into the hands of people who will spend it.

It is interesting that while Canadian business leaders have repeatedly complained about new tax rules, the rising cost of payingminimum wage, and U.S. government tax cuts that will send jobs south, this week the Canadian Federation of Independent Business (CFIB)said it facesa shortage of workers.

The private sector has about 400,000 jobs sitting vacant because it can't find the workers to do them.

"It's good news, bad news,"says Ted Mallet,CFIB'schief economist. "We're having an economy that has recovered. We've got unemployment rates down below sixper cent now. So the counter to that is that businesses are having trouble finding that perfect fit."

Mallet saystwo-thirds ofthe worker shortage is the result of businesses not being able to find people with the correct skills.

Pushing productivity and wages

In the past, this phase in the job cycle has been good for workers because it makes employers more willing to bring insomeone who is not quite fully qualified and train them up to fill the gaps. Mallet calls this "up-skilling."

Others might call it old-fashionedin-house training, which helps young graduates stuck in the position of not having the skills to get a job because they haven't had a job where they could learn the skills.

It's also good for the wider economy because it increases the number of skilled workers. In theory, that should raisethe quality and productivity of the entire workforce.

The simplest traditional economic models suggest rising productivity should also affect wages.

The added cost of training unskilled or under-skilled workersmakes it worth paying more for those who already have theskills that are in demand.

Mallet says the remaining third of the worker shortage is because it is difficult to find unskilled workers who are sufficiently motivated to do some of the economy's less-rewarding tasks.

In some cases, he says, businesses in such a position may choose to increase automation or simply not bother expanding at all.

Barring those options, the unskilled shortage should also put a premium on Canadians who are motivated, while forcing employers to motivate otherswith higher wages or better working conditions.

People power

"But it has long been clear that wage-setting is more complicated than the simplest models allow," says an article in the current issue of the generallypro-free market Economist magazine, analyzing the reason why wages stay low in countries like Canada while the economy booms.

"There is good reason to think that power imbalances play a big part in the rich world's wage stagnation."

It's possible that ashortage of workers could be the impetus to alter that power balance, strengthening the hand of individual employees who have skills that are in demand as well as empoweringworkers who organize into unions.

Increasingwages in rich countries is usually viewedas a good thing because it helpsexpand economic activity beyond the small circle of a better-off capital-owning class. But there would be other consequences.

In some quarters, analysts worry that falling unemployment will eventually result in an end tothe stock market boomas rising wages push up inflation, forcing central banks to raise interest rates. Certainly with unemployment rates in the U.S. plunging to 3.8 per cent last Friday, the Federal Reserve must be wary.

There could be a similar effect in Canadaas rising interest rates slow the housing market, leading to that threatened decline in demand forconstruction workers. That could still happen. A trade war could still stall job creation. The optimistic forecast for tomorrow's numbers could be wrong.

But so long as falling markets don't result in a protracted and disruptive financial crisis, a shift in power that reduces the investment wealth of the owners of capital and increases the income of wage earners who willspend that moneymay not be just good for the workers, but good for the wider economy.

Follow Don on Twitter @don_pittis