With immigration cuts and retirements shrinking workforce, Canadian businesses face rising wage pressures and tighter hiring conditions
Wage growth in Canada is projected to accelerate in the coming years due to labour shortages as fewer immigrants enter the country and a surge of retirements creates a shrinking labor pool and more competition for staff.
Richard Forbes, principal economist at the Conference Board of Canada, says there are two powerful forces colliding: reduced immigration and an aging population.
Without new migrants entering the country, average wages are likely to rise. Migrants often fill lower-paying jobs as they settle, so in their absence, others will need to take these roles, which will push wages upward, Forbes says.
“With slower population growth and a rising number of retirements coming, we will see a tighter labor market that ultimately bids up wages.”
The Conference Board’s latest projections show that, after several years of volatile growth, wage increases are expected to stabilize at around 2.4 to 2.5% annually by 2027. That outpaces the projected inflation rate of 2% and signals a structural shift in labor dynamics rather than a temporary spike.
Skilled trades face squeeze as demand rises
Certain sectors are already feeling the pressure – particularly the construction industry. With younger workers increasingly favoring academic routes over skilled trades, construction companies are bracing for a talent shortage that will likely force wages upward. The result is an imbalance that’s difficult to resolve quickly.
“There's a strong demand to get houses built in the country, [but] a lot of those jobs are occupied by people that are on the brink of retirement,” Forbes says.
In the short to medium term – roughly the next five years – this crunch is expected to intensify.
“We're going to see a lot of demand for skilled trades, and that's ultimately going to bid up construction prices and home prices around the country,” Forbes says.
But further down the line, the dynamics may shift again, this time driven by automation and artificial intelligence, with some tasks eventually being automated. However, that won’t relieve the current shortage.
“Longer term, I think the big thing is we're probably going to see a shift towards more technology. Artificial intelligence could create an occupational shift in the economy,” he says.
Inflation, too, has played a role in driving up wages. With recent inflationary surges still fresh in the minds of both employers and workers, those expectations are lingering longer than usual.
“Expectations have been really high, and that usually drives wage growth; when workers think that inflation is going to be really high, they demand higher wages as a result,” Forbes says.
Wages may stabilize, but policy decisions could shift balance
The Conference Board anticipates that wage growth won’t keep accelerating, but rather, will reach a new plateau.
“We see it increasing and then remaining at that increase point,” Forbes says. “We see wage growth coming down this year and into next year, and then as we head into more 2027 and onward, we see wage growth around the 2.4 to 2.5% range.”
Still, the outlook is anything but fixed. One of the most significant variables is government policy, especially immigration. The current cuts, Forbes warns, may push up wages in the short term, but they’re likely to weigh on the broader economy over time.
“If the immigration policies change that has a really major impact on our labor market outlook as a whole,” he explains. “Our stance has always been that the reduction in immigration targets is actually bad for the economy. We could see short term average wages increase, but there's less workers available to create goods in Canada; we see immigrants as a net benefit for governments.”
Without enough workers to produce and build, Canada’s economic dependence on trade – especially with the U.S. – could become even more precarious.
“There are less available workers in what's already a pretty tight labour market in Canada,” Forbes says. “Whether Canada can diversify its exports and trading relationship away from the US and having more workers in house would be a good solution.”
Recommendations for employers
For employers trying to navigate this changing landscape, compensation strategies will need to evolve. Flexible work, additional leave and other non-monetary perks could help companies compete when higher pay alone isn't enough.
“It's important to offer not just wage benefits to workers, but also non-wage benefits,” he says.
Hiring strategies may also need to be sharper, as firms may be “more hesitant to hire if there’s less people looking for work because that leads to less job creation,” Forbes says.
The message to employers is clear: fewer available workers and more competition will define the coming labor market. Businesses that adapt quickly, by offering more than just higher pay, may have a better shot at securing the talent they need to stay competitive.
