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.