Rising Canadian Unemployment Rate Due to Population Expansion, Not Job Losses: CD Howe Report

A "Help wanted" sign is seen in the window of a bakery in Ottawa in this file photo. Reuters/Chris Wattie

Canada’s rising unemployment rate in 2024 was due to the labour force expanding faster than available employment opportunities, rather than being a result of losses or shortages in specific sectors, a new report suggests.

“The labour force and employment in Canada have been expanding due to a surge in immigration,” according to a report from the C.D. Howe Institute. “Despite unemployment rates remaining higher than the pre-pandemic level, this primarily reflects the exceptional growth in the labour force rather than a lack of job creation.”

Canada’s unemployment rate temporarily surged by four points to 9.7 percent during the COVID-19 pandemic in 2020, but quickly recovered to 5.3 percent in 2022, the report said. It had risen to 6.3 percent by 2024.

There were more than 572,000 job vacancies in the third quarter of 2024, a 12 percent increase compared to the pre-pandemic level in the fourth quarter of 2019, according to the report. The labour market recorded 1.5 million individuals without employment during that quarter, resulting in a ratio of more than two job seekers for each available position.

While 1.7 million new jobs were filled between 2019 and 2024, the country’s labour force increased by 1.9 million, with the imbalance pushing the unemployment rate higher and making it harder for Canadians to secure employment.

Canada loosened its immigration policies following the pandemic, which led to its population increasing from 38 million in July 2020 to an estimated 41.7 million in October 2024. The number of permanent residents, non-permanent residents, and international students all increased during that time.

Ottawa began modifying its immigration rates in 2024. It put a two-year intake cap on the number of international student permit applications, and reduced the number of permanent residents to be admitted into Canada over the next three years.

The imposition of tariffs by the United States is likely to harm export-related jobs and push unemployment higher, according to the report. It noted that 1.8 million Canadians, or 8.8 percent of workers, are employed in industries dependent on U.S. demand for Canadian exports. These include oil and gas extraction, pipeline transportation, and primary metal manufacturing.

January 2025 saw Canada’s unemployment rate drop to 6.6 percent from 6.7 percent a month earlier, as the economy added 76,000 new jobs.

The C.D. Howe report said these stricter immigration policies may reduce the growth of the labour force and place downward pressure on Canada’s unemployment rate. But it noted the continuing arrival of refugees could lead to higher unemployment rates if they have trouble integrating into the labour market.

Labour Productivity

The report also noted Canada has been facing decline in labour productivity. This trend, the report says, is due to factors such as “stagnant capital investment and automation, high reliance on temporary foreign workers to fill low-paying positions, underemployment (including immigrants’ overqualification), a growing public sector with lower productivity, and shifts in industry composition.”

Other challenges noted by the report include labour shortages in certain sectors, underemployment, and regional imbalances.

“Our international comparisons show that Canada typically ranks at or below the Organisation for Economic Co-operation and Development (OECD) average in terms of labour force participation and employment rates for certain population segments,” the report says.

“This is largely due to weaker performance in specific regions, such as the Atlantic provinces, and pension policies that incentivize early retirement.”