Resilient amid the limbo as we enter 2023

  • The Canadian labour market was fairly steady in 2022Q4 and still in strong shape, with both the unemployment rate and layoffs staying low. 
  • Wage growth remained brisk through November, as pay gains continued their solid trend despite relatively subdued rates of job hopping during the second half of 2022. 
  • Canadian job postings on Indeed held strong — well above their pre-pandemic levels — through mid-December, especially for lower- and mid-paying positions, after slipping this summer. 
  • While conditions remained resilient in 2022, the path for a positive trajectory in 2023 is narrower, as the Bank of Canada aims to constrain domestic demand and the global economy teeters on edge. 

After showing signs of weakening over the summer, the Canadian labour market has held steady this fall. Momentum has cooled from the first half of 2022, but both employment and job postings held up well through November, while wage growth remained strong, at least in nominal terms. As a result, the job market approached the end of 2022 in solid shape, but also in limbo heading into the new year. 

Employment flat but not falling

As of our inaugural quarterly Labour Market Update covering data through August, the Canadian labour market was on a three-month losing streak, according to the Labour Force Survey (LFS). The data has firmed since then, including a jump in October, in between two fairly flat readings in September and November. Meanwhile, the Survey of Employment, Payrolls, and Hours (SEPH), showed payroll growth between the spring and October was a bit stronger than the LFS, but also cooler than the pace earlier in the year. Overall, both metrics highlight the downshift in momentum from boom to neutral over the second half of 2022.  

A line chart entitled “Canadian labour market held steady in 2022Q4” shows the percent change in employment since February 2020 according to the Labour Force Survey (LFS) through November 2022, and the Survey of Employment, Payrolls, and Hours (SEPH), through October 2022.
A line chart entitled “Canadian labour market held steady in 2022Q4” shows the percent change in employment since February 2020 according to the Labour Force Survey (LFS) through November 2022, and the Survey of Employment, Payrolls, and Hours (SEPH), through October 2022. LFS ticked up between September and November to 2.7% above its pre-pandemic level after slipping during the summer, while SEPH payrolls were a bit stronger than the LFS trend. 

Both lagging and leading industries add jobs, others mixed

Beneath the flat headline trend in the LFS between May and November, job growth by industry has been mixed, showing a “U-shaped” pattern. Some areas where employment is still far below pre-pandemic levels like accommodation and food services, agriculture, and “other” services (which includes personal care), added workers. With the accommodation and food services job vacancy rate still quite elevated, there’s still room for improvement in the sector, potentially even in the face of a broader cyclical slowdown. 

A scatter plot chart titled “Modest catchup among lagging industries” with each data point representing how employment in different industries stood in November 2022 compared to their pre-pandemic level on the x-axis, and six months earlier on the y-axis
A scatter plot chart titled “Modest catchup among lagging industries” with each data point representing how employment in different industries stood in November 2022 compared to their pre-pandemic level on the x-axis, and six months earlier on the y-axis. Some industries like accommodation and food services, as well as other services, grew a bit faster than average over the past six months, despite being well below their pre-pandemic levels. Meanwhile, some industries already further ahead like finance and real estate, as well as public administration, also added jobs. 

At the other end of the “U,” employment also grew over the six month period in the three industries furthest above their February 2020 levels: professional and technical services, public administration, as well as finance, insurance, and real estate, highlighting a strong supply of white-collar job seekers. Meanwhile, recent growth was generally weaker among industries where employment since the start of the pandemic has more resembled the economy-wide trend. Construction and health care employment were flat over the past six months, while wholesale and retail trade fell 4.4%, as few new jobs were created. 

Low unemployment rate supported by few layoffs 

Flatter employment growth likely reflects both a combination of slower economic momentum and Canada’s labour market recovery approaching its limit. The unemployment rate in November stood at 5.1%, below its pre-pandemic rate, and just above its multi-decade low of 4.9% reached in June. The drop in joblessness in 2021 and the first half of 2022 was surprisingly fast, but achieving further progress was always going to be a challenge. 

A line chart entitled “Unemployment rate near its multi-decade low” shows the Canadian unemployment rate between January 2015 and November 2022
A line chart entitled “Unemployment rate near its multi-decade low” shows the Canadian unemployment rate between January 2015 and November 2022. The unemployment in November stood at 5.1%, just a tick above its 4.9% rate in July, and below its pre-pandemic level. 

One trend that’s helped keep the unemployment rate low is that relatively few Canadians have lost their jobs in recent months. Between September and November, on average 0.52% of Canadian workers per month were newly jobless due to either layoff or discharge, according to the LFS. The lowest the rate reached in recent years over the same period was 0.60% in 2018. Layoff rates were either at or below their 2017-2019 averages across most industries, including construction and retail trade, despite some signs of slowdown in these sectors. 

A line chart entitled “Canadian layoffs have stayed low through November” shows monthly layoffs and discharges as a per cent of the prior months’ employment between February 2017 and November 2022. The layoff rate over the past three months averaged 0.52%, lower than rates seen over the same period in previous years. 
A line chart entitled “Canadian layoffs have stayed low through November” shows monthly layoffs and discharges as a per cent of the prior months’ employment between February 2017 and November 2022. The layoff rate over the past three months averaged 0.52%, lower than rates seen over the same period in previous years. 

Wage growth chugging along despite limited job hopping

The tighter labour market has translated into solid nominal wage growth, as employers look to both attract new workers and retain existing staff. That said, the strength varies across data sources. Overall average hourly earnings were up a strong 5.6% year-over-year according to the November LFS, while composition-adjusted LFS wages were also running hot. Conversely, SEPH payroll data shows more lukewarm pay growth, near a 4% pace. 

A line chart entitled “Wage growth solid, though mixed across metrics” shows the pace of year-over-year growth in nominal average hourly earnings since July 2019 through November 2022 in the LFS, and September 2022 in SEPH
A line chart entitled “Wage growth solid, though mixed across metrics” shows the pace of year-over-year growth in nominal average hourly earnings since July 2019 through November 2022 in the LFS, and September 2022 in SEPH.  Wage growth has been above 5% in the LFS, while it’s been a bit softer in the SEPH payroll data.  

The strong pace of wage growth in the LFS has been fairly broad-based across both low and higher-paying occupations. Meanwhile, wage growth in November was especially brisk in a range of industries, including professional and technical services, accommodation and food services, and manufacturing. 

Interestingly, the recent upswing in nominal wages hasn’t coincided with much of a pickup in job hopping. Job changing can boost wage growth, both through the pay increases secured among those finding new positions themselves, and also by incenting employers to raise compensation to avoid having their workforce poached. However, despite elevated job openings throughout the economy in 2022, Canadians were slightly less likely to change employers than in years past, especially over the second half of the year. 

line chart entitled “Job hopping has been subdued for most of 2022” shows the share of Canadian workers who changed jobs in the past month between January 2018 and November 2022.
A line chart entitled “Job hopping has been subdued for most of 2022” shows the share of Canadian workers who changed jobs in the past month between January 2018 and November 2022. The job changing rate was below its 0.69% pre-pandemic average for most of 2022.

One potential reason that job hopping hasn’t surged (in contrast to the US) is that a greater share of employees are optimistic about their prospects for career advancement in their current positions than in years past, according to Statistics Canada. Meanwhile, in October, 59% of long-tenured employees had received a raise within the past year, a similar proportion to the 60% of job switchers moved to a higher-paying position, limiting the advantages of moving. 

Job postings holding up in the face of uncertainty

Given the cloudy economic outlook, it’s possible the subdued rate of job mobility in 2022 ends up being a missed opportunity for some job seekers. However, so far, job opportunities remain plentiful. After slipping 9% between early May and September, Canadian job postings on Indeed held strong throughout the fourth quarter, and as of December 9, were still 67% higher than their pre-pandemic level on a seasonally adjusted basis. Hiring appetite might not have been quite as hot as in mid-2022, but it remained at strong towards the end of the year. 

Line graph entitled “Canadian job postings held up well in Q4.”
Line graph entitled “Canadian job postings held up well in Q4.” With a vertical axis ranging from -90% to 90%, Indeed tracked the percent change in total and new Canadian job postings between February 1, 2020 and December 9, 2022. As of December 9, total Canadian job postings on Indeed were up 67% from their February 1, 2020 levels, rebounding somewhat after slipping during the summer. 

Job postings trends have been more mixed beneath the headline numbers. Lower-wage jobs as a group rose in the fourth quarter, with growth in jobs like food services, and cleaning and sanitation. Momentum has also been positive in mid-wage jobs, especially blue-collar fields like construction and driving, which historically have been quite cyclically sensitive. Meanwhile, high-wage, mainly white collar job postings have slipped, including in areas like banking and finance, and especially tech, only partially offset by strength in other fields like nursing. Overall, through mid-December, job postings were still well above pre-pandemic levels across nearly all occupations. The question is whether this environment will persist in 2023.

A line chart entitled “Strong Q4 for mid- and low-paying job types” shows the change in Canadian job postings on Indeed grouped by wage tiers between February 1, 2020 and December 9, 2022
A line chart entitled “Strong Q4 for mid- and low-paying job types” shows the change in Canadian job postings on Indeed grouped by wage tiers between February 1, 2020 and December 9, 2022. Job postings for low- and mid-paying job types rebounded in Q4 after slipping over the summer, while postings for higher-wage jobs continued to slide. All three categories remain well above their pre-pandemic level. 

The narrow path to “immaculate disinflation”   

At the macro level, the Canadian labour market in the year ahead faces two somewhat interrelated challenges. First, can the job seeker’s market that emerged from the pandemic persist? And second, can real (i.e. inflation adjusted) wages reverse their decline in 2022 from the jump in consumer prices?

The Bank of Canada has emphasized that the labour market is currently in a position of “excess demand,” but its ongoing tightening cycle will bring conditions, including elevated job vacancies, back to “balance.” However, even if falling job openings are the directional goal of policy, the extent of decline required to eliminate excessive demand can only be judged after the fact. It’s contingent on the response of other labour market conditions, like unemployment and wage growth.

How wage growth evolves is of particular interest, given it lies at the intersection of several cross-cutting trends. The tight labour market conditions supporting nominal wage growth continued in the fourth quarter in spite of continued rate hikes, while employers are well aware that high inflation has meant paychecks aren’t going as far. At the same time, elevated economic uncertainty could make some employers wary of locking-in higher compensation plans. Complicating the matter is the potential for trends in wages to filter back into prices. 

All this being said, achieving a scenario where the labour market remains in good shape in 2023 — that is, unemployment staying low, while real wages rise — is going to require a heavy dose of good luck. In particular, the global factors that have pushed up the prices of food, energy, and durable goods, which kicked off Canada’s bout of inflation in 2021, need to recede, without the overall economy entering a recession. However, the path to such an “immaculate disinflation” is narrow. 

Methodology

All job postings figures in this blogpost are the percentage change in seasonally adjusted job postings since February 1, 2020, using a seven-day trailing average. February 1, 2020, is our pre-pandemic baseline. We seasonally adjust each series based on historical patterns in 2017, 2018, and 2019. Each series, including the national trend, occupational sectors, and sub-national geographies, is seasonally adjusted separately. This week, we applied our quarterly revision, which updates seasonal factors and fixes data anomalies. Historical numbers have been revised and may differ from originally reported values. New job postings are posts that are seven days old or less. 

The number of job postings on Indeed, whether related to paid or unpaid job solicitations, is not indicative of potential revenue or earnings of Indeed, which comprises a significant percentage of the HR Technology segment of its parent company, Recruit Holdings Co., Ltd. Job posting numbers are provided for information purposes only and should not be viewed as an indicator of performance of Indeed or Recruit. Please refer to the Recruit Holdings investor relations website and regulatory filings in Japan for more detailed information on revenue generation by Recruit’s HR Technology segment.