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Headline labour market statistics in Canada look gloomy in 2026 but beneath those headlines lie more encouraging details: fewer permanent layoffs and stable hidden unemployment point to easing cyclical weakness and underlying resilience.
Sectors exposed to U.S. demand are still seeing job losses, but those losses haven’t spread to the broader economy. More recently, hiring intentions among Canadian firms have picked up, though translating those plans into actual job growth will take time.
Structurally, Canada’s aging population is tightening its grip on labour supply as immigration slows and retirements accelerate. Below, we outline the key hidden trends that leave us content with our cautiously optimistic view about Canada’s labour market recovery this year.
Tariff-driven job losses remain narrowly concentrated
U.S. tariffs have hit exposed Canadian industries hard. Employment in sectors dependent on U.S. demand1 fell 2% since February 2025—worse than the 1% decline a year earlier. This weakness, however, has not spread to other sectors, that saw 1% job growth over the same two-year period.
Statistics Canada’s estimated that in 2024, U.S. demand accounted for 12% of total employment in Canada. That share, however, is much higher for manufacturing jobs (at 41%), particularly in auto manufacturing and aluminium production and processing, where it exceeds two-thirds.
Looking ahead, this bifurcated backdrop will persist as U.S. tariffs are expected to remain targeted but elevated. But, we expect firmer spending by Canadian households, businesses, and governments will support growth in the remaining ~90% of jobs that focus on domestic demand.
Layoffs have continued to decline
Canada’s recent job losses—declines in three of the first four months of 2026—have drawn concerns, but they haven’t been driven by layoffs. Permanent layoffs have instead fallen nearly 10% between October 2025 and April 2026.
Similar to the U.S., “low hire, low fire” best characterizes today’s Canadian labour market. Persistently weak hiring has left many labour market entrants jobless, and pushed the share of new jobs (started within the last year) in total employment to a near record low in April. This trend is disproportionately affecting younger Canadians, who historically account for a larger share of job seekers.
By our count, more than one in four unemployed workers today were attending school before becoming unemployed— above the one-in-five average from the decade pre-pandemic.
Still, tentative signs of improvement are emerging. Early in 2026, business surveys point to rising hiring demand. Among the unemployed, both temporary layoffs and future starts2 have increased—workers currently not working but with jobs lined up to return to or start soon.
Hidden unemployment isn’t rising
Unlike headline employment counts, which can bounce around significantly and are affected by non-cyclical trends like changes in government immigration policy, the unemployment rate measures relative supply-demand dynamics and is therefore a better gauge of individuals’ experience in the job market.
There is one exception: If hidden unemployment rises—such as when more people work part-time involuntarily, or when job seekers are discouraged and give up searching (thereby dropping out of the labour force and not counted as unemployed anymore)—that’s when the official rate can miss underlying weakness.
However, these groups can be easily tracked, using broader unemployment rate measures like the R-83. To date, the R-8 and the official R-4 unemployment rates remain closely aligned, suggesting there isn’t much hidden weakness beyond what the official measure already captures.
This is true even among younger workers, where hidden unemployment also appears contained. To date, despite elevated unemployment, there’s little signs of young job seekers in Canada giving up on their job searches en masse. That is consistent with Statistics Canada reports of NEETs (young adults not employed or in school) in 2025, which at 13% remained close to pre-pandemic levels.
Longer job searches are concerning, but they do not flag the same kind of layoff-driven labour market weakness typically seen, for example, at the beginning of a recession. Later this year, persistent job search by young workers could be rewarded as hiring demand improves more significantly.
Hiring demand holds up amid Middle East tensions
Canadian businesses were planning to hire more workers ahead of the Middle East conflict, according to the Bank of Canada’s first quarter Business Outlook Survey results.
Firms in February reported stronger hiring intentions focused on boosting productivity and capacity—not just keeping lights on at existing facilities. This likely reflected increased household spending through 2025, and easing trade concerns among firms less exposed to U.S. tariffs.
Business sentiment broadly held up even amid Middle East tension. The CFIB Business Barometer showed small business near-term confidence fell in March and April but remained well above year-ago levels. The share of small and medium sized businesses expecting to add jobs over the next few months continued to rise in April.
The turnaround in sentiment is encouraging, though it remains to be seen how much improving hiring intentions will translate to actual job growth later this year. Importantly, structural forces—slower immigration and an aging population—are also at play, limiting headline job growth.
Labour force aging returns as immigration slows
Canada’s population growth is slowing sharply after rapid increases in prior years that sparked concerns about housing affordability public services, and led the government to pivot on immigration policies.
Since immigration tends to attract younger families and workers than Canada’s median population age, rapid increases between 2022 and 2024 were enough to temporarily offset decades-long declines in labour force participation due to aging population.
When immigration slowed in 2025, this decline resumed. By spring 2026, Canada’s labour force participation rate hit its lowest level since 1997 (excluding the pandemic) following record number of retirements, and will likely continue declining through the foreseeable future. This reinforces our view that even moderate job losses would be consistent with an steady-to-declining unemployment rate this year.
Overall, progress in the labour market has not been smooth. But we continue to look through near-term volatility to focus on healthier underlying details, resilient domestic demand, and structural constraints on labour supply to support our forecast for a gradual downshift in the unemployment rate this year.
About the author:
Claire Fan is a senior economist at RBC. She focuses on macroeconomic analysis and is responsible for projecting key indicators including GDP, employment and inflation for Canada and the US.
- Defined as sectors where more than 35% of jobs are due to U.S. demand. ↩︎
- Persons who did not have a job during the survey reference week and did not search for work within the previous four weeks, but are available to work and had a job to start within the next four weeks. They are classified as unemployed, because they are part of the current supply of labour. ↩︎
- R-8 adds back discouraged searchers, waiting groups, and a portion of involuntary part-time workers to the official R-4 unemployment rate. ↩︎
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