Governor Tiff Macklem talks about how the labour market has adjusted to higher interest rates and slower economic growth. He also discusses how a strong, inclusive labour market is key to growth in the long run.
Watch Governor Macklem speak to the Winnipeg Chamber of Commerce. Read the full speech.
Overall, the labour market has adjusted well
When the labour market is healthy, Canadians can find the jobs they want, employers can find the workers they need, and wages can grow in a way that doesn’t cause high inflation.
But as the economy reopened after pandemic restrictions ended, businesses couldn’t find enough workers to keep up with demand. The job market overheated—pushing up wages, prices and inflation.
We raised interest rates forcefully to slow demand and relieve price pressures. As a result, spending has cooled, and businesses have scaled back hiring. Along with strong immigration, this has helped the supply of workers catch up with demand. Now the labour market is closer to being in balance.
Overall, the adjustment has been smooth. Most businesses have taken down job postings instead of laying people off. So vacancies have declined without a big increase in unemployment.
Inflation has fallen too. It is not at the 2% target yet, but it is much closer.
With further and sustained easing in underlying inflation in recent months, we are more confident that inflation will continue to move closer to the target.”
Some people are having trouble finding a job now
Whenever the labour market adjusts to slower growth, some people are affected more than others.
Less hiring means it’s harder for new workers to enter the job market. That is particularly affecting younger people and newcomers to Canada:
- the unemployment rate for youth is almost 2 percentage points higher than it was in 2019, the year before the pandemic
- the unemployment rate for newcomers to Canada is rising much faster than the overall rate
Even though monetary policy cannot target specific parts of the economy, we need to look at how the job market is affecting different people to better understand the big picture. While the overall unemployment rate is close to pre-pandemic levels and still relatively low, the slowdown in hiring means some groups are having a harder time finding jobs. This suggests the economy can grow and add more jobs without pushing up inflation.
A strong, inclusive labour market is key for growth
A healthy labour market helps the economy grow without too much inflation.
The labour force has been our biggest advantage for years, reflecting three key strengths:
- high labour force participation—Canada’s participation rate for women in particular is highest among G7 countries, thanks in part to affordable child care and flexible work arrangements
- strong immigration—we attract some of the world’s best and brightest to study and work in Canada, and we integrate them into the economy relatively quickly
- a good education system—we develop workers that the economy needs and businesses want
But we need to build on these strengths so everyone can participate in the economy. We also need to fix our main weakness: productivity—the amount of output per worker. Productivity growth raises our living standards because it lets businesses pay higher wages without raising prices and causing inflation.
We need to keep investing in an inclusive labour market, smart immigration, and a strong and accessible education system. Let’s not take these for granted as we tackle our productivity problem.”
Watch Governor Macklem answer questions from the media following his speech.
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