Labour Markets After the Pandemic Reshuffling

The Cooling

Canada’s unemployment rate has risen from its post-pandemic trough of 4.9% to above 6.5%, driven primarily by rapid population growth through immigration outpacing job creation rather than widespread layoffs. The economy is adding jobs — but not fast enough to absorb a labour force expanding at its fastest pace in decades.

Wage Dynamics

Average wage growth has moderated from its 2022–23 peak but remains above pre-pandemic norms in nominal terms. In real terms — adjusted for cumulative inflation — many workers are still catching up to where they were in 2019. Public sector workers, whose contracts often lag private sector settlements, are now pushing for catch-up increases, creating fiscal pressure on governments already running structural deficits.

The Productivity Problem Returns

Canada’s output per hour worked has declined relative to the US over the past decade. A tight labour market briefly masked this — when labour is cheap and abundant, the incentive to invest in productivity-enhancing capital and technology is reduced. As labour costs rise and the market loosens, the reckoning with chronic underinvestment in machinery, equipment, and R&D cannot be avoided.