The labour market is not as healthy as it looks | Canada Up Close

Hi, I’m Callee Davis, economist at Oxford Economics. Today, I will be discussing why we believe Canada’s labor market is not as healthy as recent headline figures suggest. In February, Canada saw a solid advance in full time employment. But these new positions were predominantly in the public sector for the third month in a row. Meanwhile, private sector employment declined after stagnating for two months.

Moreover, involuntary part time employment has been rising since September. This raises questions about the general health of Canada’s market based economy. The public sector cannot sustain its recent pace of hiring. Alongside weakening private sector hiring and mounting layoffs, we will likely see outright declines in headline employment in the coming months. The economy has also not created enough jobs to satisfy the rapid growth in its working age population due to strong international migrant inflows.

This lifted the unemployment rate to 5.8% in February this year, from 5% early last year. A large share of these new arrivals is youth between the ages of 15 to 24 years old who are in Canada on temporary study permits and are not currently seeking employment. They are therefore considered to be outside of the labor force. As a result, the overall participation rate has trended downward in recent months.

Many of these young people will eventually enter the labor force. This would boost the participation rate and increase the labor supply. In fact, the youth participation rate already retraced some of its earlier declines in February 2024. We expect a modest retracement in the participation rate alongside continued strong immigration led working age population growth and mounting private sector layoffs to push the unemployment rate to 7.5% range later this year.