‘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’
The way the Canadian labour market is moving could be detrimental to the country’s competitiveness, according to the Bank of Canada.
Currently, employers are operating in a "low hire–low fire" labour market, with hiring sharply slower, long-term unemployment near historic highs and youth joblessness rising faster than any other age group, External Deputy Governor Nicolas Vincent said.
The Canadian economy added only about 6,000 jobs a month on average since the start of 2025, compared with almost 34,000 a month in 2024, Vincent told the Centre interuniversitaire de recherche en analyse des organisations (CIRANO). The unemployment rate sits between 6.5% and 7%.
Layoff rates remain low and stable, but the ability of unemployed Canadians to find a job is "close to its lowest point in 30 years," he said Tuesday during a speech in Montreal. Workers are also changing jobs less often, creating broad inertia in the workforce.
"A less mobile labour market slows our adjustment to shocks, holds back innovation and hurts our competitiveness," Vincent said. He pointed to trade uncertainty and population aging as key drivers, noting employers are holding on to experienced staff longer rather than hiring new entrants.
Small business confidence in Canada fell sharply in May, signalling weaker hiring, tighter wage budgets and more cautious workforce planning for HR professionals, according to data from the Canadian Federation of Independent Business (CFIB).
Long-term unemployment near historic high
Excluding the pandemic period, the share of unemployed Canadians searching for work for more than six months is at its highest level since the early 2000s, Vincent said.
Job postings have demanded more experience over the past two years, while the share of Canadians who have never worked has grown.
"Businesses keep telling us it has become harder to find workers with the right skills and experience," he said, citing Bank surveys. Unemployed workers identified the same mismatch as their main obstacle.
Vincent warned of lasting damage if the trend persists. "Employers may also look negatively on applicants who have been out of work for long stretches," he said, citing risks of skill erosion, discouragement and weaker future earnings.
Vincent said it remains unclear how much of the trend is cyclical and how much is structural. If long-term unemployment falls as activity picks up, "that will point to a more cyclical phenomenon," he said. A persistent gap between worker skills and employer demand, he added, would point to deeper change.
RBC Capital Markets forecasts that “the unemployment rate in Canada will trend moderately lower to below 6.5% by the end of 2026 as hiring demand gradually recover while external headwinds subside,” Sophie Leadbetter, Manager, Corporate Communications, at the firm told HRD via email.
Youth unemployment surges
The jobless rate for Canadians aged 15 to 24 has climbed to over 14% from a record low of 9% in 2022, the largest increase among all age groups.
Young Canadians now make up almost one-quarter of the long-term unemployed, a share that has more than doubled since 2022.
Vincent cited several possible causes, including a large influx of young immigrants between 2022 and 2024, the cyclical sensitivity of sectors such as retail, and a structural decline in jobs requiring little experience.
Job finding rates have fallen most sharply in occupations most exposed to artificial intelligence, he added, though Canadian AI adoption remains limited.
"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," Vincent said.
“So far it doesn’t appear that young Canadian job seekers (despite high rates of unemployment) have become discouraged and given up job searching en masse, given Statistics Canada’s NEET estimate that remained near pre-pandemic levels in 2025,” said “Later this year, if hiring does pick up as we expect, then the persistency of young job searchers could be rewarded as they start to find employment at a faster rate.”
Monetary policy alone cannot resolve structural labour issues, putting the onus on employers, educators and governments to ease transitions, broaden skills and expand on-the-job training, said Vincent.
"How can we better prepare young people for the new realities of the labour market?" he asked.
