What’s going on with Canada’s labour market?

Canada’s labour market is undergoing a structural shift as population growth stalls following the rapid acceleration seen in 2023 and 2024, forcing economists to rethink what constitutes “strong” or “weak” job creation.

According to RBC Economics assistant chief economist Nathan Janzen’s Jan. 12 report, the key change is a sharp decline in Canada’s “breakeven employment” rate; the pace of job creation required to keep the unemployment rate from rising. With fewer new entrants into the labour force, far fewer jobs are now needed to stabilize or even reduce unemployment.

In recent years, headline job growth masked underlying weakness. Canada added an average of about 45,000 jobs per month in 2023 and 32,000 per month in 2024, the strongest two-year stretch outside the pandemic rebound. Even so, the unemployment rate rose by nearly two percentage points as population and labour force growth surged. RBC estimates that job gains closer to 60,000 per month would have been required just to keep unemployment steady during that period.

That dynamic has changed quickly. Reduced temporary resident arrivals in 2025 lowered the breakeven rate to roughly 25,000 jobs per month. By 2026, with population growth effectively flat and labour force participation drifting lower due to aging, RBC estimates the breakeven rate could fall negatively to about -10,000 jobs per month. This means modest job losses, which would typically raise recession concerns, could still be consistent with a stable or declining unemployment rate next year.

As a result, aggregate economic growth may not look materially stronger in 2026, even if per-worker and per-household conditions improve and unemployment eases. Policymakers and investors will need to recalibrate how they interpret monthly labour data, particularly given its volatility.

Longer term, the outlook becomes more complex. Slower immigration helps ease near-term pressures on housing and public services, but it also accelerates population aging. Canada’s labour force participation rate has already fallen by more than four percentage points since 2008 as baby boomers retire, and that trend will continue through the decade. Retirees remain active consumers, widening the gap between demand and available labour.

Absent productivity gains, RBC warns that labour shortages could re-emerge faster than expected, reviving tensions around immigration policy. While governments remain cautious about reopening the taps after the strains of 2023–2024, a falling unemployment rate in 2026 could renew pressure to loosen temporary resident caps into 2027 and beyond.

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