What’s causing the high rate of youth unemployment? TD economists give their take

Changes in workplace organisation, rather than the business cycle alone, are a key driver behind Canada's elevated youth unemployment rate, according to a recent TD report.

While overall youth unemployment reflects the usual amplified effect of a soft economy, teenagers aged 15 to 19 have fared worse than economic conditions alone would predict, wrote TD economists Maria Solovieva and Andrew Hencic, in their report.

Solovieva and Hencic modelled expected youth unemployment based solely on unemployment among workers 25 and older. For those aged 20 to 24, actual unemployment aligned closely with the model's prediction. Teenagers did not follow the same pattern.

The report states that "broader labour market conditions do not fully explain the deterioration among the youngest workers," pointing instead to changes in the types of jobs teenagers typically hold, including first jobs and part-time, entry-level positions concentrated in a small number of industries. 

Youth unemployment in Canada has fallen for three consecutive months, and economists say the primary driver is fading anxiety over the U.S. trade war, which is giving employers enough confidence to resume hiring young workers.

However, while overall youth unemployment (ages 15 to 24) has declined to 12.6% in July from a peak of 14.6% last September, the gap between youth and adult unemployment remains historically wide, according to TD.

Sector-specific drivers

The authors of the TD report identified accommodation and food services and retail trade as the two industries responsible for most of the recent decline in youth employment, together accounting for roughly 25,000 fewer youth jobs since 2019.

In accommodation and food services, young workers have maintained or gained employment share; the sector's overall contraction, not reduced youth hiring, is driving the decline. TD noted the sector remains roughly $5.2 billion below its pre-pandemic trend.

Retail trade presents a different concern for employers. Solovieva and Hencic found retailers are increasingly retaining and hiring more experienced staff over younger candidates, a shift the report says reflects "both cyclical and structural forces at work" that may persist even as overall demand recovers. 

Nearly three-fourths (73%) of business leaders say their organization will likely create new entry-level roles centred on artificial intelligence (AI) over the next two years, according to a previous report.

Remote work and outlook

While AI has been widely cited as a factor limiting youth hiring, Solovieva and Hencic wrote that Canadian data do not yet show clear evidence of this effect, unlike some early findings in the United States.

Instead, the report pointed to the rise of remote work as a more immediate factor behind reduced early-career hiring, noting that diminished in-person mentoring and on-the-job learning may be increasing employer preference for experienced staff over junior hires.

The authors also linked part of the earlier rise in youth unemployment to rapid population growth, which has since reversed. Solovieva and Hencic expect youth unemployment to continue easing as labour force growth slows and the broader economic recovery progresses.

Here are some things employers can do to help address youth unemployment in Canada, according to different sources: