December 12, 2024
Don’t let the high unemployment rate fool you; Canada is still experiencing a labour shortage, and economists say employees will only gain more leverage in the market as the economy continues to recover into 2025.
After a steep pandemic-spike and an eventual recovery, Canada’s unemployment rate has been steadily rising in tandem with interest rates and consumer prices, from a multi-decade low of 4.9 per cent in the summer of 2022 to recently topping 6.9 per cent in November.
The rising unemployment rate, however, may be deceiving, as talent surpluses are largely confined to specific corners of the economy. For most other sectors, hiring remains a challenge.
“The difference this time compared to prior labour market slowdowns has been the higher share of younger workers accounting for that increase in unemployment, and a higher share of new arrivals to the labour market,” says Royal Bank of Canada assistant chief economist Nathan Janzen. “We haven’t seen as many layoffs as you normally would with an unemployment rate the size that we’ve had, but it’s been a longer job search time for new job seekers.”
Mr. Janzen says weaknesses in the labour market are largely confined to new entrants – typically younger and new Canadians – owing to significant slowdowns in consumer spending. He explains that high interest rates have slowed spending on retail, hospitality and food services, which tend to hire disproportionately from those talent pools.
For everyone else, the labour market is deceptively strong, and were it not for high interest rates and inflation, Mr. Janzen suggests the past two years would have seen a continuation of the hot postpandemic labour market. As those measures begin to cool, that may be what’s in store for 2025.
“We’re probably closer to the end than the beginning of this labour market slowdown,” he says. “We expect the unemployment rate to stop rising next year, and then drift lower later next year and into 2026.”
Mr. Janzen explains that Canada’s aging population is gradually depleting its workforce, and outside the economic shocks he says labour shortages are the norm, not the exception. “This is the abnormal. Once we get through this cycle, we’ll be back to labour shortages being a significant challenge [for employers] again.”
Despite a rising unemployment rate, 80 per cent of Canadian employers are struggling to fill roles, according to a recent study by recruitment company ManpowerGroup. Furthermore, 43 per cent say they are looking to grow their workforce next year – up from 41 per cent last year – and another 41 per cent intend to keep staffing levels the same in 2025.
“Finding qualified talent is still a challenge,” says ManpowerGroup’s Canada country manager Darlene Minatel. “I think we’ll see more opportunity for employees in 2025 for those that have the skills that are aligned with what companies are buying.”
According to the study, 80 per cent of Canadians are finding meaning in their work, but one in three intend to look for a new job in the new year, including 52 per cent of those aged 18 to 27. At the same time, Ms. Minatel doesn’t believe Canada will see another wave of the “Great Resignation” in 2025, even as the labour market moves further in favour of employees.
“I think people were very quick to jump ship because they were focused on earning more money,” she says of the time around 2021. “People today are much more thoughtful in light of what we’ve learned since then, with terminations and the market not being as viable.”
Instead, Ms. Minatel suggests a more competitive hiring landscape in 2025 will force employers to deliver on more of their employees’ non-monetary demands, such as flexibility, career development and work-life balance.
“My advice to employees is to always be open and transparent with your employer about what it is you need and want as it relates to your career,” she says. “That will help organizations better deliver on what employees are wanting, because I think there’s a real desire to retain good talent, and that feedback is really important.”
