Author: Azadeh Haidari-Garmash, RCIC
Insights into Canada's Evolving Labour Market
Wage growth is anticipated as immigration slows and competition for talent increases
On This Page You Will Find:
- Canadian Labour Market Trends
- Wage Growth Projections
- Impact of Immigration on Employment
- Economic Outlook and Trade Challenges
- Analysis of Inflation and Living Costs
Summary:
Canadian employers are predicted to increase wages over the coming years due to a tightening labour market and reduced immigration, according to a report by the Conference Board of Canada. The forecast highlights a shift in power towards workers, resulting in wage growth amidst trade uncertainties with the U.S. Despite these positive wage trends, low-income households continue to struggle with rising living costs.
As Canada navigates the multifaceted challenges of a changing labour market, a recent report from the Conference Board of Canada sheds light on a potential shift in employment dynamics: wage growth. Canadian employers may be compelled to raise wages as the labour force growth slows, a development attributed largely to reduced immigration rates and heightened competition for talent.
Canadian Labour Market Trends
The report indicates that for the first time in over two years, Canada's labour force grew at a slower pace than employment, signaling a tighter labour market. This trend is expected to drive the national 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," noted Cory Renner, the board's associate director of economic forecasting, suggesting that this shift may accelerate wage growth.
Wage Growth Projections
According to Statistics Canada, average hourly wages increased by 3.4% year-over-year in May, maintaining the pace set in April. The Conference Board projects that despite trade uncertainties, the economy will expand by 1.5% in 2025. However, the ongoing tariffs are anticipated to remain until the end of 2026, affecting business and consumer confidence.
While certain Canadian exporters have turned to new markets, these efforts haven't fully compensated for losses in U.S. exports. This context emphasizes the need for employers to offer competitive wages to attract and retain talent, as wage growth becomes increasingly necessary to maintain business operations.
Impact of Immigration on Employment
The slowing rate of immigration has played a significant role in shaping Canada's labour market. Historically, immigration has been a critical factor in the country's workforce expansion. With fewer newcomers, the talent pool shrinks, creating a more competitive environment for employers and allowing workers to command higher wages.
Despite the promising outlook for wage growth, the Canadian Centre for Policy Alternatives warns that low-income households are still struggling. Rising living costs continue to outpace earnings, intensifying affordability pressures for these groups.
Economic Outlook and Trade Challenges
Canada's labour market has demonstrated resilience despite external pressures, particularly from U.S. trade policies. Although the national unemployment rate rose to 7% in May, employment levels remain steady compared to the previous year.
The Conference Board anticipates that hiring will remain subdued throughout 2025 as businesses hesitate to expand payrolls due to ongoing trade uncertainties. The current environment is marked by caution among both employers and workers, with a general reluctance to make significant moves.
Cory Renner predicts a potential economic contraction in the second quarter due to the impact of tariffs, although growth is expected to rebound later in the year. The Bank of Canada has maintained its benchmark interest rate at 2.75%, and a slight rate cut is anticipated later in the year.
Analysis of Inflation and Living Costs
In 2025, Canadians are reportedly earning less in real terms due to rapidly rising living costs. Shivi Bhardwaj, a talent acquisition specialist, highlighted several factors contributing to this issue: sluggish productivity growth, weak investments in innovation, and a widening gap in income inequality.
Minimum wage levels, ranging from $15 to $19 CAD per hour, are insufficient to keep pace with the cost of essentials, further exacerbating challenges for low-income households. Employers predict a modest salary increase of around 3.4% in 2025, which may not be enough to bridge the gap for many workers.
References
- Conference Board of Canada
- Statistics Canada
- Canadian Centre for Policy Alternatives
- Bank of Canada
- LinkedIn - Shivi Bhardwaj
