By BDC
MONTREAL, Canada – The Canadian job market is slowing down. Although the situation isn’t alarming yet, it’s important for entrepreneurs to be aware of the weakening employment picture and the factors driving it.
Strong employment stimulates consumer spending and is a key driver of growth. It also makes households more resilient to economic turbulence and sustains the tax revenues that finance public services. By contrast, a slowdown can mean weaker sales for businesses and a changing human resources environment.
Trade relations between Canada and the United States continue to be tense and much uncertainty remains. That’s making it difficult for companies to effectively plan for the future.
Here’s what you need to know about the labour market to help you forecast your sales, manage your costs and understand the salary outlook for 2026.
Jobs market gears down
Canada is facing an economic slowdown that’s being driven by tariff pressures and trade uncertainties. Uncertainty has prompted many businesses to hold off on expansion plans, with repercussions for hiring and overall employment levels. Still, layoffs remain stable, so far, reflecting resilience in the labour market.
However, after many months of gains, July marked a turning point in the labour market. There was a net loss of 40,800 jobs, mainly in full-time private sector positions. Job losses continued in August, when the economy shed another 65,500 jobs.
The August decline was larger, but perhaps less alarming than the one in July. That’s because the losses were concentrated in part-time jobs (-60,000) and among the self-employed (-43,000).
These losses don’t suggest an imminent crisis, but the situation is deteriorating. The unemployment rate rose rapidly over the year, to 7.1 percent in August.
There were 3.2 unemployed people for every job vacancy in Canada in June, a ratio that has been rising in recent months. Although there are still sectors and regions where finding workers is difficult, this is much less of an issue for business owners than it has been in recent years.
The pool of potential workers is growing rapidly and, as a result, the number of vacancies is falling. While the number of unfilled positions remains significant in line with the pre-pandemic period, the openings are concentrated in a few sectors.
Statistics Canada counted 492,000 open positions nationwide in mid-2025. One in five was in the health and social services sector. And local service industries such as accommodation and food services, as well as retail trade, together accounted for another 20 percent of worker demand.
Wage growth slows, productivity remains stagnant
According to Statistics Canada, total compensation for salaried employees edged up by 0.2 percent in the second quarter, the smallest increase since the second quarter of 2016, excluding the pandemic.
Weaker wage growth will be welcome for entrepreneurs, but it comes with other challenges in the current context.
Uncertainty is pushing managers to slow the pace of hiring, which takes pressure off salaries. But the same dynamic is also causing them to delay investments that would improve the efficiency and productivity of their businesses.
Despite some recovery in productivity in 2024 (+0.6% after three years of decline), labour costs have soared. Over the past 10 years, corporate productivity has risen by just 3.2 percent, while unit labour costs (how much labour it costs to manufacture a single unit) have jumped 32 percent.
To remain competitive, businesses know they need to tightly control salaries. However, pay is also a key lever for attracting, motivating and retaining talent, especially in a market undergoing realignment.
What to do in 2026?
A slowing economy is causing compensation growth to trend lower. Employers are offering smaller pay increases in preparation for a possible recession and in reaction to the greater availability of workers. Canadian companies expect to increase their compensation budgets by 3.0 percent in 2026, a decline from recent years and a return to longer-term trend.
Workers in some business sectors can expect higher increases. For example, the IT and software sectors are expected to boost pay by 4.5 to 5 percent. But this pressure is coming mainly from new hires for highly specialized positions.
Elsewhere, sectors exposed to the threat of tariffs will likely see wage grow slower. The impact of tariffs has already led many manufacturers to cut their salary budgets. The decline will continue for 2026 in this sector but should remain near the national average.
The impact on your business
- A weakening job market could well lead to a slowdown in consumption. Revise your sales forecasts accordingly, if you haven’t already done so.
- Although wage growth is slowing, unit labour costs remain high, without equivalent productivity gains. Companies must therefore adjust their talent management strategies to remain competitive in the current environment.
- Prioritize investments that improve long-term productivity. Rather than cutting staff across the board, identify those positions where targeted investment can generate sustainable efficiency gains. This may even involve improving your employees’ skills.
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