A \u201cfundamental structural shift\u201d in Canada\u2019s job market means the unemployment rate could fall in the months ahead even if more jobs are lost than gained, according to a new report from RBC Economics.<\/p>\n
A growing wave of baby boomers retiring<\/a>, coupled with immigration curbs limiting population growth, is causing a significant drop in the number of new jobs needed to keep the unemployment rate<\/a> steady, the report by economist Nathan Janzen says.<\/p>\n As a consequence, \u201cmodest job losses that would normally trigger recession concerns would instead be entirely consistent with a stable or slightly declining unemployment rate in the year ahead.\u201d<\/p>\n A central focus of the report is the breakeven employment rate \u2014 the number of new jobs needed to keep the unemployment rate stable. Because population growth is stagnating while boomers leave the workforce, that breakeven rate is \u201cshrinking dramatically,\u201d Janzen says.<\/p>\n The federal government has taken various steps in the past two years to slow population growth, with caps placed on the number of foreign students and other non-permanent residents (NPRs). In particular, Ottawa aims to reduce the proportion of NPRs<\/a> in the overall population from over seven per cent to five per cent by the end of 2027. Statistics Canada population data last December revealed a quarterly decline<\/a>, an occurrence unprecedented outside the COVID-19 pandemic.<\/p>\n Canada\u2019s aging population has already caused the labour participation rate \u2014 the proportion of the population working or actively seeking employment \u2014 to fall four percentage points since 2008, Janzen writes. Furthermore, he notes, \u201cbaby boomers will continue to hit retirement age in greater numbers over the remainder of the decade.\u201d<\/p>\n Recent years show the impact that swinging population growth and demographic changes can have on the job market. Average monthly job growth was 45,000 in 2023 and 32,000 in 2024, Janzen notes, \u201cthe strongest two-year pace on record outside the pandemic recovery.\u201d<\/p>\n However, the unemployment rate rose almost two percentage points over that time, a rise Janzen says is \u201chistorically indistinguishable from a recession.\u201d During that period, when Canada\u2019s population was growing rapidly, the breakeven employment rate was \u201ccloser to 60,000 per month.\u201d<\/p>\n Immigration policy changes since then have caused that figure to plummet. \u201cIn 2025, reduced temporary resident arrivals already lowered the breakeven employment rate to 25,000 jobs per month,\u201d Janzen writes. Looking ahead, he adds, \u201cCanada\u2019s breakeven employment growth rate is on track to be slightly negative \u2014 about -10,000 jobs per month on average in 2026.\u201d<\/p>\n Although curbs on population growth could offer relief around housing affordability and strained public services, such restrictions will also cause the population to age more quickly. \u201cNew immigrants are, on average, younger than the Canadian population,\u201d Janzen noted. \u201cThat means reducing temporary resident arrivals will accelerate population aging and intensify future labour shortages.\u201d<\/p>\n As a result, policymakers could face difficult choices around current immigration restrictions, with the need to factor in the economic consequences of labour shortages and also the housing and public service demands of faster population growth.<\/p>\n \u201cThese dynamics will shape Canadian economic policy and performance not just in the year ahead, but into the next decade,\u201d Janzen wrote.<\/p>\n John MacFarlane is a senior reporter at Yahoo Finance Canada. Follow him on X @jmacf<\/a>.<\/p>\n Download the Yahoo Finance app, available for Apple<\/a> and Android<\/a>.<\/p>\n