External Deputy Governor Nicolas Vincent discusses three trends signaling weakness in Canada’s labour market, exploring whether they reflect temporary factors or deeper structural change.
Watch External Deputy Governor Vincent speak to the Centre interuniversitaire de recherche en analyse des organisations (CIRANO) in Montréal, Quebec, by webcast. Read the full speech. Read the full speech.
Digging deeper
Recent weakness in Canada’s labour market is partly due to temporary factors that could fade as the economy improves. But some developments may signal deeper, more permanent change. Big structural forces—US tariffs, artificial intelligence and slower population growth—may be transforming how the labour market works.
Distinguishing between temporary and long-lasting change is difficult but essential. Getting it right helps the Bank of Canada keep inflation close to target to support Canadians through a period of upheaval.
To better understand what is driving change in the labour market, the Bank looks beyond traditional jobs market data. It analyzes more granular data and survey results to uncover details not visible in headline indicators.
Three major trends
Three interconnected trends raise questions about the labour market’s ability to adapt to change and to support economic growth.
- A “low hire–low fire” environment—marked by few layoffs and weak hiring—makes it harder for unemployed workers, especially younger ones, to find a job.
- Long-term unemployment is near historic highs, which may lead to skill erosion and lasting damage to workers’ prospects.
- Youth unemployment has risen faster than for any other age group, and almost one quarter of the long-term unemployed are aged 15 to 24.
Each reflects a mix of cyclical pressures and possible structural forces. The Bank will continue to monitor a wide range of data to better understand their underlying causes.
Adapting to uncertainty
Understanding whether labour market pressures are temporary or long-lasting is key to conducting monetary policy.
Monetary policy can help address cyclical weakness. But interest rates are a blunt tool—we can only use them to support the labour market if inflation is under control. And monetary policy cannot resolve structural constraints. Misreading the source of weakness risks either fuelling inflation or delaying needed economic adjustment. Careful analysis is therefore critical to maintaining low, stable inflation while the economy adapts.
Businesses, educators and governments also play a role in addressing challenges in the labour market and ensuring that Canada remains competitive.
Regardless of the uncertainty around the scale and scope of the structural forces shaping our economy, it’s important to be thinking now about how to respond and adapt. These forces could have profound impacts on employment in Canada.”