Canada’s labour market is changing, but it may take a while for the central bank to identify whether the changes are temporary and cyclical or persistent and structural, said Bank of Canada external deputy governor Nicolas Vincent in a speech in Montreal Tuesday. Addressing a crowd at the Centre interuniversitaire de recherche en analyse des organisations (CIRANO), Vincent said Canada’s labour market has slowed recently and there is mild excess supply. Canada’s aging population combined with a “low-hire, low-fire” environment means the labour market is less dynamic than it used to be, he said. Workers aren’t moving from less productive sectors to more productive ones as much, which slows down Canada’s productivity, income growth and collective purchasing power. A sharp rise in the interest rates in 2022 and 2023, along with economic uncertainty caused by United States tariffs and the conflict in the Middle East, has also led businesses to scale back hiring instead of laying off workers, he added. The lower turnover also means workers are less likely to change jobs. Vincent noted that while monetary policy can help the economy transition during periods of restructuring, the central bank needs to understand the nature of these changes to the labour market before making any decisions. Changes to the key interest rate cannot compensate for lower supply caused by factors such as trade friction and population aging, and it could create inflationary pressures if the central bank tries to stimulate demand when the issue is more structural in nature. “Traditionally, central banks respond to cyclical ups and downs in the economy by raising or lowering the policy interest rate…. However, with structural change, our options are more complicated,” he said. “Our goal remains to ensure inflation is low, stable and predictable.” Vincent’s speech comes as long-term unemployment in Canada rose significantly above pre-pandemic highs. According to data from Statistics Canada and the Bank of Canada, 22.5 per cent of unemployed people have been out of work for 27 weeks or more as of April 2026. In comparison, the pre-COVID-19 pandemic average was 17.1 per cent from 2017 to 2019. Vincent said that, from a structural perspective, there is a key gap between the skills and experience workers have and the ones employers want. Over the past two years, job postings have required more experience than before, while the share of people who have never worked has grown. Artificial intelligence is another “plausible structural explanation,” Vincent added, since job finding rates have fallen the most in sectors that are most exposed to AI and entry-level jobs have been impacted. However, the central bank official said it is still “premature to conclude that AI is the determining factor.” On the cyclical side, Vincent said businesses have responded to high uncertainty by slowing hiring instead of laying off workers, which means it takes longer to find a job. “Time should give us a clearer idea…. To make the right decisions, we need to be able to identify the nature of changes in the economy. One of the main challenges we face is to accurately distinguish structural changes from cyclical fluctuations, particularly in real time,” Vincent noted. “We need to remain humble and clear-eyed. The big forces affecting the economy will always carry some uncertainty, and the current environment is especially complex. Risk management is therefore essential.” Regardless, Vincent said it is important to think about how to respond and adapt to a changing labour market. The Canadian government may need to establish new trading partners to diversify exports and make Canadian businesses more competitive, especially at a time when weakness in employment has been concentrated in sectors most exposed to trade with the U.S. Canada’s unemployment rate rises to 6.9% as economy sheds more jobsBank of Canada rate hike bets look ‘unrealistic’ given ‘sclerotic’ state of jobs market, say economists Canadian post-secondary institutions may also need to rethink approaches to education and training to prepare young people for the new realities of the labour market and make it easier for people who lost their jobs to find new opportunities, he added. “The Bank also has a responsibility to foster dialogue about the challenges and transformations facing our economy. We must push the boundaries of our analysis and communicate our findings as clearly as possible, so households, businesses and governments can make informed decisions too,” Vincent concluded. • Email: ptran@postmedia.com
Changing job market complicates Bank of Canada’s interest rate path
