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  • KPB & Co Research


As we go deeper into the information age, the competitive landscape is intensifying and many industries that were once highly differentiated or had cost advantages are either becoming commoditized or have their cost advantages erode. The devastation in the retail industry is an example of the dislocation caused by the rise in e-commerce and big data. For investors looking on as the 3rd industrial revolution unfolds, the issue that must be front and centre of your mind is how does your company compete when it is so difficult to be unique? Part of the solution lies in the quality of your team . HR departments will now have to be very adept at identifying talent and creativity, which invariably means that the broader issue of diversity and inclusivity must be tackled head-on. The literature on the benefits of having a diverse workforce are many, and some investors are beginning to take note, but the data show that there is still room for improvement among Canadian companies.


We looked at what 42-years of employment data suggest with regard to diversity across gender, and race in Canada. Given that the employment data is countrywide, the results of the review represents the overall picture, at the same time, there might be differences across individual companies. In aggregate, the data suggest a few things: 1) in spite of the template rhetoric repeated by most companies "we try to employ people in proportion to the distribution of race across the population of Canada" there are still very visible differences in corporate diversity across visible minorities, 2) material gains have been made for women but there are still disparities in the labour force participation rate, and pay, and finally 3) men have been playing a smaller role in the labour force over time.

VISIBLE Differences in CoRPORATE Diversity Across VISIBLE MINORITIES

The proof of the unbalance lies in the results of the 2016 census. Although the census is dated, it is hard to imagine the trends changing by much in 2 years. According to Statistics Canada, while the national average unemployment rate was at approximately 7.7% in 2016, unemployment rate amongst blacks was almost double the national average at 12.5%, for West Asians it was at 11.0%, for Arabs a massive 13.5%, South Asian 9.2%, Latin American 9.0%, and Chinese 8.0%. Most of the other groups were either near or below the national average (See Chart Below). It is important to point out that minority races as a group were at 9.2% in 2016, which is also substantially higher than the national average. While we believe that some work is being done to address the inequality, a lot of work lies ahead. Canadians should also keep in mind, that in spite of all the rhetoric about the state of America's conscience post-2016 election, the unemployment rate amongst blacks in America stood at 8% in 2016, and today it is at 6.8%. Moreover, there are disparities in Canadian income distribution across visible minorities as outlined in reports based on 2015 census data.



Women are GAINING GROUND

Women have been taking market share over the years. Given where the level of gender bias the country is coming from in the past, minority races should appreciate the progress, for it appears women were once a "minority race". In the early 1970s, the unemployment rate among women 15 years and older averaged 8.2%, and by 1984 that rate stood at 11%, today that rate sits at 5.2%, a massive improvement over the last 42 years. Whatever strategies women have been using to get these results they are working. On the other side of the universe are men, who have seen stable unemployment rates, but have been giving up market share nonetheless. In the early 1970s, the unemployment rate among men averaged approximately 7%, but is at 7.2% today.




Over the last 46 years, the labour force participation rate among men have been declining, while it has been increasing consistently for women. This trend reflects a workforce that is becoming more diverse in terms of gender, in light of the fact that the participation rate for women aged 15 years and older is coming from 45.7% in 1976 relative to 61.3% today. For men, there have been a consistent decline from 77.7% in 1974 to 69.6% today. More work needs to be done in this area as there is still a 8.2% percentage point gap between women and men participation rates.


The Gender Pay gap is real, AND GROWING

Between the period January-2001 and January-2019, the gap between the weekly pay of women and the weekly pay men grew 9.4%. At first glance, it would appear that while women have made significant improvements in labour force participation, and in employment they have taken a pay cut. On a deeper look, the annual pace of increase in women's week pay (3.9%) is almost 1 percentage point higher than that of men's (2.8%), which implies that women's weekly pay may catch up in the very distant future. For now, the gap is widening as men have started out with a significantly larger base, and the pay for men has to grow by at least the inflation rate. The Central Bank target inflation rate is about 2%, as such if men's weekly pay were to grow less than 2%, the resulting erosion of purchasing power will likely have a negative impact on their families.




Canadian companies are not immune to the changing landscape of the global economy, and the impact of technological progress on competitive positioning. It is therefore very wise and profitable to address the lingering inequalities that exists across race and gender in order to bring out the best in a team. Moreover, millennials who are continuing to dominate consumer demand are rewarding companies that pay attention to social impact issues such as diversity, and punishing companies that don't. The question is on which side of the boat do you want to be in the future?


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