Canada’s Labour Market is adding thousands of jobs. What does this mean?

With rising interest rates, many Canadians are facing increasing financial difficulties. The Bank of Canada raised interest rates 7 times in 2022, with the last rate hike bringing the benchmark rate to 4.25 percent. With the Bank of Canada’s next interest rate decision coming on January 25th, many are waiting with bated breath. It is tough out here – and many are feeling economic distress. There is a bright spot though: Canada’s job market.

Canada’s Job market is doing well?

In December 2022, Canada added 104 000 jobs, bringing our current employment rate to 5%, which is 0.1% away from our record low of 4.9% last summer. Canada’s job market is not just doing well but doing historically great. Moreover, this increase consisted primarily of full-time jobs, with our economy adding 85 000 full-time workers. 

The distribution of these jobs by industry is also notable. The industries that saw an increase in employment were diverse. Industries such as construction, transportation, and warehousing, professional, scientific and technical services and more saw notable increases. While Ontario was responsible for significant job growth in construction and professional, scientific and technical services, Canada’s most populous province did see employment fall in health care and social assistance, as did Quebec. 

The data is optimistic for job seekers: opportunity is there waiting, especially in Ontario.

The Gig Economy is going strong

Another interesting data point in the monthly jobs data is the proliferation of the gig economy. For the entirety of 2022, 250 000 Canadians provided ride or delivery services. While gig economy jobs do not make up the bulk of Canada’s economy (gig workers in December were 0.3% of the total workforce, concentrated in Toronto, Montreal and Vancouver) their flexible work schedule provides a great opportunity for those that want to work full time on their own time or supplement their method of primary income. Perhaps the economic stress of rising interest rates provided an incentive for Canadians to turn to the Gig Economy.

How does the Bank of Canada interpret Job Data?

The Bank of Canada views the job market as an important factor when it comes to setting interest rates. This past November Bank of Canada Governor Tiff Macklem discussed in a speech how the Bank of Canada looks at the relationship between inflation, employment and interest rates. Macklem states that “the best contribution the Bank of Canada can make to the well-being of Canadians is to keep prices low and stable.” This is relevant to the job market, because per Macklem; “inflation that is near our 2% target and what economists call ‘maximum sustainable employment’ are strongly connected’”.

In other words – the labour market and inflation are hand in hand – and one goal of rising interest rates is to influence the labour market: “demand is what the bank influence with interest rates…because the labour market is hot and we have a high number of vacant jobs, we can afford to cool the economy without causing the surge in employment that we experience in previous recessions”.

So, while the unemployment rate is relevant to the Bank of Canada’s decisions (they do not want to increase employment too much) job vacancies are a key metric. The higher the job vacancies, if currently paired with inflation, the more likely the Bank of Canada is to raise interest rates. While Job Vacancy data for the last quarter of 2022 is not currently available (except for many temporary absences in December stemming from the flu and other sicknesses), experts view the current unemployment rate as a signal the labour market is still tight. Thus the Bank of Canada will likely increase rates by a 25 basis point on January 25th.

What does this mean for me?

While the job market data does suggest further interest rates, the good news is (1) there are plenty of jobs available and (2) if the experts’ predictions of another .25% raise are right, that represents an improvement over the 0.75% raise in September and the 0.5% raise in December. The Bank of Canada started increasing the Interest rate in March 2022, with a 0.25% raise. In all subsequent months, the Bank of Canada gave raises higher than 0.25%. If the Bank of Canada raises the interest rate again at 0.25%, it may mean interest rate raises will end soon, and Canada’s strong labour market will not radically change too much from today.



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