Canada’s ability to attract talent is making it a victim of its own success. Statistics Canada (Stat Can) data revealed minimal job losses for July 2023. However, the unemployment rate climbed as population growth doubled the rate of jobs. This helped drive the unemployment to the highest level since the start of 2020.
Canada’s Unemployment Rate Is Back To Pre-Pandemic High
Canada’s unemployment rate did something not seen in the 2020s—it climbed for 3 months in a row. The unemployment rate increased 0.1 points to 5.5% in July. It follows an 0.2 point increase seen in May and June, respectively. The rate is still relatively low, but also the highest since January 2020. Hundreds of billions in stimulus is no longer producing excess growth when it comes to jobs.
Canada’s Unemployment Rate Hits A Multi-Year High
The seasonally adjusted monthly unemployment rate for Canada.
Source: Statistics Canada.
At a high level, a rising unemployment rate is due to falling jobs, and/or a workforce growing too fast. Fewer jobs are self explanatory, but in rare circumstances an economy adds more workers than jobs. Why’s it rare? Would you move to a more expensive region where you are unlikely to find work? It hasn’t been a trend long enough to change people’s minds, but every trend starts with a few months.
To understand Canada’s rising rate, let’s take a quick dive into both of those factors.
Canada’s Employed Population Made A Slight Decline
Canada just saw the number of employed workers fall. There were 6,000 fewer filled jobs in July, leaving 21 million employed persons in the country. It’s a reduction, but not even enough to be an 0.1 point change. Losing 6,000 jobs in a country with 21 million employed workers is equivalent in size to the layoffs at just one big company. One that happens to still be profitable.
Clearly, not the source of unemployment rate growth.
Canada’s Population Growth Is Double Its Job Growth
Canada’s booming population is where most of the rising unemployment rate formed. The labour force expanded by 0.1% (+13,300 people) to reach 21.33 million people in July. Putting it together, that’s 13,000 more workers trying to fit into 6,000 fewer jobs in July. Canada’s population is growing faster than the country can create jobs.
The trend is one that’s persisted for months. From January to July of this year, the employment rate fell 0.5 points. Population increased 1.4% over that period, while jobs rose just 0.7% at the same time. The size of Canada’s workforce is growing at double the rate of job creation, which is a bad position to be in. Ideally it’s not one the country finds comfortable.
Immigrants Are Less Likely To Be Employed
Recent immigrants (arrived within 5 years) are having a tougher time finding jobs. The demographic’s employment rate fell 2.3 points over the past year to 77.7% in July. The agency’s calculations reveal the average rate from 2017 to 2019 was 70.8%, nearly 7 points lower. It’s still easier for recent immigrants to find a job in the 2020s, it’s just becoming more difficult.
For context, Canadian-born workers have seen little change over the same period. The employment rate came in at 86.6% in July, showing little change from a year before. From 2017 to 2019, the average rate was 84.9%, so they’re also having a better time than pre-2020s. At least from the perspective of the employment rate. However, the rate isn’t eroding like it is for recent immigrants.
Canada’s population surge is both helping and hurting the unemployment rate. Having lofty immigration targets helps to stimulate demand, reflected in GDP growth. After all, people consume, and create more aggregate demand. More people means more consumption, especially for areas like food and shelter.
At the same time, stimulus measures become less effective the longer they’re used. Aggregate GDP is growing, but on a per capita basis it’s now contracting. Each unit of “human capital stock” is generating more excess demand than it’s contributing. This leads to market inefficiencies, like inflation growth. Canada is currently struggling to figure out what to do with its windfall in talent.