Over the past few years Canadians have repeatedly heard of a labor shortage. Policymakers have suddenly gone silent on the issue, and surprise—there’s now a massive surplus of labor. BMO warns the increased competition will produce higher employment and lower wages. Not great news for labor, but good news for the central bank looking for signs that inflation has been tamed.
Canada’s Labor Shortage Is Quickly Turning Into A Labor Glut
Canada’s labor shortage is turning into a labor glut. The job vacancy rate peaked at 6.0% in April 2022 due to rates held too low for too long, stimulating excess demand. A few years later, it fell to 3.4% in April 2024, but the aggressive pursuit of workers hasn’t slowed down. The population has actually continued to see growth accelerate, leaving many unemployed workers.
“After a few years of serious shortages and capacity constraints, we’ve tipped in the other direction,” explains Robert Kavcic, a senior economist at BMO.
He adds, “That is, labour supply growth is running well in excess of the economy’s ability to absorb it with job growth. The result is a rising unemployment rate.”
Canadian Unemployment Climbing Sharply As Excess Labor Piles Up
The unemployment rate climbed to 6.4% in June, up 1 point from a year prior. That works out to 1.4 million unemployed people in Canada, up a whopping 21.1% (+245.2k people) from last year.
Source: BMO.
It’s worth taking a moment to appreciate what the above chart shows. Labor supply and demand were balanced going into 2020, and excess didn’t appear until 2022. It persists for roughly the period of low rates and excess stimulus, almost immediately beginning to resolve as rates begin to climb. Considering how often policymakers mention the labor shortage, the above chart probably isn’t what most expected.
Canadian Wages Set To Slow, Good News For The BoC
Excess labor and shrinking worker demand will slow down wages in the not-so-distant future. Annual growth reached 3.7% in April. It’s not exactly a boom, but well above the 2.0% target inflation rate, which will work against wage growth soon.
“While this hasn’t found its way into slower wage growth yet, the reality is that such transmission will take time. But forward-looking indicators suggest that firms are no longer struggling with a lack of labor (some exceptions apply), and they do plan to slow the pace of wage growth,” says Kavcic.
This is not great news for labor, but it is good news for Canada’s central bank. Wages have contributed to above-target inflation by driving input costs higher. A particularly problematic issue for service inflation, which most recently accelerated. BMO sees excess labor as another factor that will put the Bank of Canada (BoC) at ease.
Where’d the excess supply come from? 😁
It’s labour, not labor. We have yet to be annexed by the US.
Then it’s tyre, not tire.
But also keep in mind that language changes. There’s no reason for the u, it’s just a relic of the past. I don’t get people who base their national pride on antiquated spelling.
Low wage growth, high unemployment, high rates, high prices, investors (smart money) have left the country. Only the bag holders left trying to break even at prices that are fundamentally unaffordable for locals. RE is facing a lot of “headwinds” as they say.
“The unemployment rate climbed to 6.4% in June, up 1 point from a year prior. That works out to 1.4 million unemployed people in Canada, up a whopping 21.1% (+245.2k people) from last year.”
Trudeau’s massive immigration policy is compounding the situation. With no experience in the private sector or knowledge of competing on the global stage, this is Canada’s problem beyond his time in office. And I don’t see any replacement in any political party to mitigate against this confusion.
The idea that there ever was a labour shortage is a myth. What we did have for a brief time is demand matching supply.
Look at it this way, if I could hire someone to wash my car for a dollar every day I would. Does that mean there is a labour shortage? No! All it means is that there is an infinite supply of unfilled jobs that don’t pay a wage you can live on. The job market is filled with these jobs. This is why the median income hasn’t kept up with inflation for decades. We have way more workers than jobs (real jobs).
Labour shortage, good riddens. So tired of hearing this term.