“In Canada, the ratio of people 65 and older to people 15 to 64 (known as the dependency ratio) is projected to increase by more than 20 percent over the next two decades. The assumption is that people 65 years and older are no longer working and must be financially supported by younger people who are working” (The Hub, October 24, 2022)

“(Canadian) Employment was little changed in November (+10,000), following an increase of 108,000 (+0.6%) in October. The stability in overall employment was the result of offsetting movements across multiple industries. Similarly, employment growth in Quebec (+28,000; +0.6%) was offset by declines in five other provinces, including Alberta and British Columbia.” (Statistics Canada, Dec. 2022)

“The most recent data from the Conference Board tells us that optimism about the (Canada’s) labour market outlook is fading.” (National Bank, December 2022)

Canada’s economy is already feeling the impact of an aging workforce in a very big way. One of the reasons why the Canadian labor market is so tight is that despite recent high levels of immigration, the country’s workforce continues to age, a process that has been going on for a long time.

Population forecasts project a further slowing in Canada’s labor force growth, a process that has serious implications for Canada’s future standard of living. For example, in 2016, Canadians aged 55 and over accounted for 36% of the working-age population (aged 15 and over), up from 30% in 2007. The share of Canadians in this age group is projected to reach an estimated 40% of the working-age population in 2026.

Most economists and policymakers, including this observer, usually ignore the importance of demographic changes, since, by their very nature, they are slow to change on a year-to-year basis. Nonetheless, demographic realities (i.e., the aging and slowing in the growth of the workforce) couldn’t come at a worse time.  

Canada’s demographic drain is coming at Canada at a time when the pandemic recession has spurred additional labor market shortages by encouraging earlier retirements, lifestyle changes, and job switching.

Finally, there are two sides to every market (supply and demand), and the reality is that there is still an incredible amount of labor demand in Canada, a consequence of the massive federal government supports in 2020 and 2021 combined with near-zero interest rates.

 Bear in mind, the Canadian economy was close to full employment in 2019 even before Covid struck.

The following two charts highlight the importance of demographic population shifts and the longer-term decline in Canada’s labor force participation rate.

Canada’s Labor Force Participation Rate, 1976-2022

Turning to recent job market developments, as the following table and charts show, Canada’s unemployment rate declined to 5.1% in November, slightly lower than the 5.2% rate in the previous two months. Of course, this underscores that the Canada’s job market was still very tight in the fourth quarter of 2022. 

While Canadian employment is still significantly higher than it was prior to the first Covid shock, nonetheless in these troubled times, Canada’s job growth has clearly stalled. 

In November, Canadian employment increased by only 10,100 net new jobs, though there was a usual spike of 108,300 jobs in the previous month.

The November mix of jobs was stronger than the total picture indicated, as 50,700 full time jobs were created while 41,000 part-time jobs eliminated.

Manufacturing employment rose strongly in November while construction employment declined. Manufacturing employment in Canada has been flat over the last twelve months, while construction employment was up by a whopping 7%. 

Service sector job creation in November rose sharply at a 20% annual rate in November and was approximately 20% higher than a year earlier. 

Average hourly wages, an indicator which is closely followed by the Bank of Canada because of its anti-inflation concerns, increased at a 5.6% a year over year rate in November, still below the 6.9% increase in the October’s consumer price index.

Looking ahead, while the Canadian manufacturing sector has continued to show strength in recent months, the global economic slowdown and the high inventory levels suggest that this sector will slow in coming months. 

As the global downturn takes affect, unemployment in Canada will of course increase. For example, the Bank of Montreal projects Canadas’ unemployment rate to increase from an average of 5.3% this year to 6.4% in 2023 and 6.5% in 2024. 

In effect, the reason Canada’s jobless rate is unlikely to go much higher than these projections is because of the continued demographic slowing of the labour force combined with some fortuitous employment increases in commodity sensitive areas.

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