Quick take

Omicron strikes the labour market

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  • As we expected, January saw a substantial pullback in the labour market, with the Canadian economy losing 200,000 jobs. Labour force participation rates slipped to 65.0 per cent and the unemployment rate rose to 6.5 per cent, the first increase since April 2021. Job losses were roughly split between full and part-time employment but occurred entirely among private-sector employees.
  • Driven by the reintroduction of restrictions, job losses were concentrated among high-contact services. Employment in the accommodation and food services industry fell by 11.1 per cent, representing a loss of over 110,000 jobs. The closure of schools in some regions drove down educational services employment, while capacity limitations in stores and personal service establishments contributed to a significant decline in retail and other services.
  • Across the country, job losses were heaviest in Ontario (–145,700) and Quebec (–63,000). Employment also fell in Newfoundland and Labrador, Prince Edward Island, and New Brunswick. Although there were gains in Alberta, British Columbia, Nova Scotia, Manitoba, and Saskatchewan, these were far outweighed by the losses and likely reflect the timing of the LFS relative to the evolving Omicron context. As restrictions start to bite, we expect job losses among these provinces to follow.
  • Total hours worked fell by 2.2 per cent, representing almost 14,000 fewer hours. The fall in hours contributed to a rise in the labour underutilization rate, which had reached a pandemic-era low in the previous month. During the reference week of the survey, roughly one in ten Canadians were absent from work due to disability or illness, surpassing the previous high of 8.1 per cent recorded in March 2020.

Key insights:

  • The arrival of the Omicron variant in Canada and the restrictions that followed have again set back the labour market in an all-too-familiar chain of events. As we have seen before, industries that are unable to relocate workers remotely bear the brunt of job losses, meaning low-wage, high-contact services tend to be the worst-affected. But the situation is progressing rapidly. Omicron appears to have peaked nationally and reopening is already well underway in many regions. While there may be lingering turbulence in February, we expect the pendulum to swing back to employment growth by the end of the first quarter.
  • As the new year gets underway, news of rampant inflation abounds. For workers, rising prices reduce what can be bought with a paycheck. For firms, there may be a temporary benefit. The stickiness of wages means they tend to grow slower than prices. A larger spread between selling prices and wages temporarily increases profit margins for businesses. However, with the labour market tightening, workers are likely to demand adjustments to their compensation given the higher cost of living and their scarcity in the economy. Though the blame for the current bout of inflation can be laid primarily on supply chain disruptions, there is a risk that an uptick in wage growth could provoke a second round of inflation. In Canada, such wage growth has yet to materialize, but a wage-price spiral remains a downside risk.
  • The recent protests across Canada reflect resistance among some to mandatory vaccination rules. Faced with sky-high job vacancy rates in several key industries, the concern for employers and governments is that mandatory vaccination rules may further exacerbate already critical staffing shortages. Yet failing to implement mandatory vaccinations requirements heightens the risk of future COVID-19 outbreaks as well as higher rates of absenteeism when outbreaks do occur. Vaccines are proven to reduce the severity of COVID-19 infections and the risk of hospitalization. As we have repeatedly witnessed, when hospitalizations rise and capacity is stretched, governments are forced to introduce restrictions. Today’s data are a stark reminder that restrictions quickly translate into job losses, which are shouldered by Canadians regardless of their vaccination status.

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Liam Daly

Liam Daly

Economist

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