ECONOMIC SPOTLIGHT // Q1 2025
Canada’s job market has been a cornerstone of economic resilience amid a backdrop of mounting uncertainties. Despite challenges such as potential trade tariffs, slowing population growth, and an upcoming federal election, the labor market has demonstrated remarkable strength. This report delves into the current state of Canada’s job market, analyzes key trends, and explores the potential risks and opportunities that lie ahead.
Key Highlights
1. Strong Job Growth: Canada’s labor market added 384.6k jobs in 2024, surpassing the pre-pandemic average of 238.9k jobs per year. Full-time positions accounted for nearly 80% of these gains.
2. Broad-Based Hiring: Job growth has been widespread across sectors, with cyclically sensitive industries like finance, real estate, and construction driving much of the expansion.
3. Youth Unemployment: The unemployment rate for workers aged 15-24 has surged to 14.2%, while the prime working-age population (25-54) maintains a healthier rate of 5.6%.
4. Wage Growth Stabilization: Wage growth eased to 3.5% year-on-year (y/y) in January 2025, down from 5.0% y/y in previous years, reflecting a cooling labor market.
5. Job Vacancies Normalize: Job vacancies have retreated from post-pandemic highs, settling near pre-pandemic levels, signaling a balanced labor market.
6. Canada & USA: Potential U.S. tariffs, population slowdown, and federal election uncertainty loom large, threatening to disrupt the labor market’s stability.
Labor Market Performance
Job Creation and Sectoral Trends
Canada’s labor market has consistently outperformed expectations, with annual employment growth exceeding pre-pandemic levels. In 2024, the economy added an average of 32.1k jobs per month, culminating in a total of 384.6k new positions. Cyclically sensitive sectors, such as finance, real estate, and construction, accounted for over half of these gains, underscoring the labor market’s resilience.
The employment diffusion index, which measures the breadth of hiring across industries, remained robust in 2024, with roughly two-thirds of sectors expanding employment each month. This broad-based growth highlights the labor market’s ability to withstand economic headwinds.
Wage Growth and Hours Worked
Wage growth has moderated in recent months, easing to 3.5% y/y in January 2025 from 5.0% y/y in previous years. This cooling reflects the stabilization of job vacancies, which have retreated from their post-pandemic peak of over 1 million to 518,170 in January 2025. Hours worked have also rebounded, growing at a robust 2.2% y/y pace, which bodes well for GDP growth and future hiring.
Unemployment Dynamics
Youth Unemployment
While the overall unemployment rate stands at 6.6%, the rise in joblessness has been disproportionately concentrated among younger workers. The unemployment rate for individuals aged 15-24 surged to 14.2% in 2024, levels typically seen during recessions. This spike is partly attributed to the rapid growth of the non-permanent resident (NPR) population, which has more than doubled since 2022. Many NPRs are young students or workers who have struggled to find employment, contributing to elevated newcomer unemployment rates of 12.6%.
Suppy & Demand Imbalances
The rise in unemployment has been heavily skewed toward lower-wage, lower-education sectors such as accommodation & food services, recreation, wholesale & retail trade, and manufacturing. These industries, which previously faced labor shortages, now contend with an oversupply of workers. Since 2021, the labor force in these sectors has expanded by 12.3%, compared to 8.8% in other industries, magnifying the mismatch between labor supply and demand.
Domestic Risks
1. Population Strategy: The federal government’s decision to cut immigration levels and reduce the number of NPRs by 1.4 million could alleviate labor market imbalances in low-wage sectors. However, this policy shift may also dampen aggregate spending, though rising household outlays could offset the impact.
2. Federal Election: The upcoming election introduces policy uncertainty, particularly around labor market regulations and immigration policies. We will continue to monitor these developments.
External Risks
1. U.S. Trade Policies: The threat of U.S. tariffs remains a significant risk. A 25% tariff on Canadian imports could push the unemployment rate to 7.9% by 2025, up from the baseline forecast of 6.3%.
2. Global Economic Slowdown: A broader global economic downturn could further strain Canada’s labor market, particularly in export-oriented sectors.
Outlook for 2025 and Beyond
Baseline Scenario
Under the baseline scenario, Canada’s labor market is expected to remain resilient, with the unemployment rate gradually declining to 6.3% by the end of 2025 and 5.9% by 2026. Solid job growth, coupled with easing population flows, should help restore labor market balance.
Downside Scenario
A trade war with the U.S. represents the most significant downside risk. In this scenario, the unemployment rate could spike to 7.9% by the end of 2025, as firms shed labor in response to reduced demand. However, if trade tensions are resolved quickly, the labor market’s strong fundamentals could support a swift recovery.
Conclusion
Canada’s labor market has been a beacon of stability in an otherwise uncertain economic environment. While challenges such as youth unemployment and sectoral imbalances persist, the overall outlook remains positive. The key to sustaining this momentum lies in navigating external risks, particularly U.S. trade policies, and addressing domestic labor market imbalances. If these challenges are managed effectively, Canada’s labor market will continue to serve as a pillar of economic strength in the years ahead.
Bottom Line
Canada’s labor market enters 2025 on solid footing. While domestic policy adjustments and strong labor market fundamentals provide a foundation for stability, external risks—particularly U.S. trade policies—loom large. The ability to navigate these challenges will determine whether Canada’s job market remains a pillar of economic strength to mounting pressures.
Stay tuned for updates as we monitor these developments closely.
Source – TD Economics*