Canada is one of the most prominent economies seeking to develop the labor market and employment, which requires adapting to the ongoing changes in the local and international context. In recent years, Canada has witnessed major changes in the structure of the labor market, reflecting the challenges facing the government and employers in trying to balance economic growth with the needs of workers. The Canadian economy relies heavily on trade, innovation, and technology, which reinforces the need to change traditional employment models.
Major Changes in the Canadian Labor Market
The Canadian labor market has witnessed significant development in recent years. Companies have increased their need for highly skilled workers in many fields such as technology, healthcare, and engineering. These transformations require flexible hiring strategies, as data has shown a significant increase in the hiring of part-time workers and temporary jobs. While permanent jobs were prevalent in the past, companies are now relying on more diverse employment models.
Later, the global economic crisis and the Corona pandemic have reinforced the trends that were emerging previously. More jobs were offered remotely or online, as many sectors have shifted to a remote work model. This shift has led to an increase in demand for digital recruitment as well as remote communication tools. These changes may seem daunting at first, but over time they can be successfully adapted to.
Challenges facing Canadian employment
With changes in employment models, the Canadian labour market faces a set of challenges that must be addressed. First, the increased reliance on non-permanent jobs has led to instability for some workers, as temporary jobs may not provide them with the same benefits and protections as permanent employees. Conversely, increase in the number of temporary jobs may lead to some workers being drawn from the formal market to the informal market.
Unemployment rate falls to 6.5% in September: What does this mean for hopes of lowering interest rates?
The Canadian economy added about 47,000 jobs in September, enough to reduce the unemployment rate for the first time since the beginning of 2024.
Statistics Canada reported on Friday that job gains concentrated in full-time work and the private sector offset losses in part-time roles and public employment.
That led to the unemployment rate falling slightly to 6.5 per cent, which Statistics Canada said was the first decline since January. The unemployment rate was 6.6 per cent in August, its highest level in seven years outside the pandemic.
The information, culture and recreation, wholesale, retail and trade, and professional, scientific and technical services sectors added more than 20,000 jobs in September.
Statistics Canada noted that job gains among young people helped reverse a weaker labour market for this younger age group of workers. Young people aged 15 to 24 added 33,000 jobs last month, pushing the unemployment rate for this age group down a full percentage point to 13.5 per cent.
The particularly tough labour market for young people and newcomers to Canada has driven the rise in the unemployment rate in recent months.
The participation rate — those who are working or actively looking for work — fell 0.2 percentage points in September. The youth participation rate in particular has been on a downward trend since February 2023, Statistics Canada said, and tends to decline in periods of high unemployment as young people spend more time in school or delay their entry into the workforce.
Average hourly earnings in Canada rose 4.6 per cent year-over-year last month, down from a 5.0 per cent annual gain in August.
Prospects for interest rate cuts are fading sharply
With inflation set to return to the Bank of Canada’s 2% target as of August, the central bank is increasingly focusing on risks to the labor market and the broader economy in an effort to prevent price pressures from falling below those levels. The Bank of Canada has cut interest rates three times since June in an effort to ease pressures on the economy.
Canada’s jobs under scrutiny as election and Fed mania fades
Canada’s job gains were a positive surprise in November, but digging deeper reveals a different story. Almost all of the job gains were in government jobs, and the unemployment rate rose to 6.8% from 6.6% in another jump in population estimates.
The unemployment rate at 6.8% is now the highest since September 2021 and well above the pre-pandemic rate of 5.9%. Before the pandemic, the Bank of Canada set its overnight rate at 1.75%. Currently, the rate is 3.75%. In 2017, when the unemployment rate was similar, the Bank of Canada set its rate at 1.00%. The market thinking is that the Bank of Canada is well behind the curve and the market now prices the odds of a 50bp rate cut next week at around 80% compared to around 50% before the data.
Add to that the government’s projections for a declining population next year and continued pressure in the housing sector, and you have a recipe for a struggling economy.
Looking at the bond market, there is some relief for Canadian mortgage holders with the benchmark 5-year Canadian government bond yield falling 12bp today to 2.82%, back to early October levels.
The spread over comparable US yields has started to widen, trading at 4.03% today. This should keep the pressure on the currency.
