'There is sort of a movement towards workers having a little more power'
Canadian employers may need to increase wages as pay is expected to rise over the next several years while the pace of immigration slows and competition for talent intensifies, according to a recent report.
For the first time in over two years, the labour force grew more slowly than employment in the first quarter of 2025, signalling a tighter labour market ahead, according to the Conference Board of Canada. The think tank forecasts that businesses will find it increasingly difficult to source talent, which will drive the unemployment rate down to 6.2% in 2026 and 5.8% in 2027.
“There is sort of a movement towards workers having a little more power, and that should accelerate wage growth a little bit in the second half of the year and into next year,” said Cory Renner, the board’s associate director of economic forecasting, in an interview with The Canadian Press (CP).
Average hourly wages were up 3.4% year-over-year in May, data from Statistics Canada (StatCan) suggest, matching the pace seen in April, according to the report.
The Conference Board projects the economy will expand by 1.5 per cent in 2025, though uncertainty over U.S. trade policy continues to weigh on business and consumer confidence. The report assumes tariffs will remain in place until the end of 2026, after which new North American trade negotiations and U.S. midterm elections could see restrictions loosened. While some Canadian exporters have found new markets, those gains have not fully offset lost exports to the U.S.
Despite a modest rebound in wage growth in recent years, Canada’s lowest-income households continue to fall behind, as rising living costs outpace earnings and compound affordability pressures, according to a previous report from the Canadian Centre for Policy Alternatives (CCPA).
Canada’s labour market has shown resilience in 2025 despite ongoing trade pressures from the United States, according to The Conference Board. The national unemployment rate rose to seven per cent in May, but total employment remains slightly higher than it was at the end of last year.
“The labour market’s actually holding up better than we expected,” said Renner.
Canada’s labour market softened in April, with job vacancies falling by 16,800—or 3.2%—to 501,300, marking the first notable monthly decline in nearly a year, according to StatCan.
The Conference Board expects hiring will remain subdued for the rest of 2025 as businesses hesitate to expand their payrolls amid continued trade uncertainty. Renner described the current environment as one in which both employers and workers are “afraid to make big moves.”
Although the Conference Board does not expect a recession, Renner said a contraction is likely in the second quarter as tariffs take their toll, with growth expected to return later in the year.
The Bank of Canada has kept its benchmark interest rate at 2.75 per cent in its last two decisions, according to the report. The Conference Board expects the central bank will cut rates by a quarter point later this year but warns that only marginal improvement in inflation may limit further reductions. “The risks seem to be tipping towards higher inflation and the economy just barely hanging on. And I think right now, the bank is probably a little more worried about inflation,” Renner told CP.
In a LinkedIn post, Shivi Bhardwaj, talent acquisition specialist with staffing firm Hireflex, noted that Canadians are earning less money in 2025. She points to the following reasons:
