Unemployment Rate Rises as Job Seekers Left Out in the Cold

Key insights

In 2024, Canada’s labour market continued to cool as employment struggled to keep with pace with robust labour force gains. The unemployment rate is on track to average 6.3 per cent in 2024, above the averages of 5.3 and 5.4 per cent recorded in 2022 and 2023, respectively. Reducing inflation has come at the cost of lower labour demand and a higher unemployment rate. Looking ahead to 2025, a sharp slowdown in labour force growth, due to lower international migration, will see conditions in the labour market tighten. As supply constraints reemerge, Canada’s unemployment rate is expected to reverse course while job vacancy rates, particularly in sectors that have come to depend heavily on the supply of temporary residents, are expected to rise.

Following his re-election, President Trump has threatened to impose trade tariffs on Canadian exports moving across the southern border. Such a move and any retaliatory measures by the Canadian government would come at cost to Canada’s economy, which depends heavily on trade with the United States. At this stage, there is uncertainty on the detail of U.S. trade policy under the incoming Trump administration, but early indications are a cause for concern among business and consumers. In the labour market, some job losses are expected as export-driven businesses close. Meanwhile, a depreciated Canadian dollar would drive up import costs, adding to inflationary pressure. The resulting drop in employment and erosion of consumer purchasing power would in turn weaken the outlook for several domestic industries, drawing from employment growth elsewhere in the economy. For an in-depth analysis on what Trump tariffs would mean for the Canadian economy, see our recent report.

With over a million temporary resident permits set to expire in 2025, the government will embark on its three-year mission to reduce the stock of temporary residents in Canada.

Achieving this target would require a net outflow of roughly 900,000 temporary residents over the next two years. This goal will demand significant resources dedicated to monitoring and enforcing visa rules and labour regulations. Cuts to permanent resident targets will make it harder for temporary residents to transfer to permanent status. As the wave of temporary visa expirations rises and the path to permanent residency narrows, the number of out-of-status persons in Canada is likely to grow, which risks fuelling undocumented employment in in the underground economy. For the employers that depend on Canada’s temporary resident workforce, in sectors such as accommodation and food services and retail, the impending departure of many temporary residents is likely to reignite hiring headaches and will force businesses to adapt recruitment and retention strategies.