Employment Flat in July as Momentum in the Labour Market Fades

Canadian Economics

By: Liam Daly

  • Employment remained effectively flat in July, following a decrease recorded in June. The unemployment rate held steady at the historic low of 4.9 per cent. After reaching a record high of 88.6 per cent in March, the labour force participation rate of core-aged workers continued to ease, falling to 87.9 per cent.
  • Public sector employment fell by 51,000, marking the first employment decline in 12 months. This contributed to an overall fall in employment in the service economy, with declines in several other industries including wholesale and retail trade (–27,000) as well as business, building and other support services (–12,300). Meanwhile, in the goods economy, employment rose in all five industries. In the agriculture industry, the job count rose to a 12-month high.
  • Employment fell in Ontario (–27,000) and Prince Edward Island (–2,300). Across the other eight provinces, there was little change in July.
  • Average hourly wages for all employees rose by 5.2 per cent on a year-over-year basis, matching the rate recorded in the previous month. Wage growth has accelerated in recent months, fueled by Canada’s tight labour market. While these gains are welcome news for workers, the rate of wage growth continues to lag inflation, which hit 8.1 per cent, year-over-year, in June.

Key Insights

Seeking to bring inflation down the Bank of Canada is raising interest rates. By reducing demand in the economy, higher interest rates are deflationary. As demand for goods and services weakens, hiring among firms is expected to slow. Historically, cycles of tightening monetary policy are associated with a rise in the unemployment rate. Although it is hoped that high levels of unmet labour demand in the economy will offer a cushion against job losses, we expect the jobless rate to rise modestly in the months ahead.

To combat widespread labour shortages, the government is making it easier for firms to recruit temporary foreign workers. While changes to the Temporary Foreign Worker Program will offer some respite for firms struggling to hire, increasing the reliance on temporary foreign workers is contentious. Advocates for migrant workers argue that temporary status, which is tied to an employer, makes these workers vulnerable to exploitation. Meanwhile, some economists argue that importing low-skilled labour risks undermining wage growth and will dampen competition, a key driver of investment and productivity growth.

The rising cost of living is raising the temperature at the collective bargaining table. Given the rate of inflation, unions argue that typical annual pay rises are simply insufficient. Amid high vacancy rates and a low unemployment rate, workers are negotiating from a strengthened position. In addition, resolve among workers has likely hardened on news of soaring corporate profits. There have already been several work stoppages across the country, and we may soon see more as unions in the public and private sectors enter negotiations this summer.