The Canadian jobs market will face cyclical pressures in the coming months that will lower inflation and lead to rate cuts but in the years ahead, the economy could struggle to keep wage inflation in check.
Right now, just 22% of firms report labour shortages in the Bank of Canada’s latest Business Outlook Survey; that’s down from a pandemic-era peak of 46%, and below the historical average level of 31%.
Despite that, wage growth expectations are high and CIBC has a good idea of why. They estimate that 38% of jobs in the country are showing signs of shortages and seeing strong employment gains. Those include occupations in health, technical trades, administrative positions in supply chain logistics, middle management positions in trade, and professional jobs in finance. Of the shortage group, about one-third are in non-cyclical fields like healthcare, education, government and law.
One of the reasons is that Canada's population has expanded so quickly and another is an aging demographic.
Here's the takeaway from CIBC:
There is a risk of a permanent change in the composition of the labour market in a way that in aggregate puts higher pressure on wage inflation relative to the pre-Covid period, as employers will have to keep wage growth strong in order to attract labour. That will not prevent the Bank of Canada from continuing to ease this cycle, but if these pockets of labour shortages continue to grow over time while demand returns to the economy, it will make the Bank’s life complicated and affect where the overnight rate ultimately rests.
