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Immigration caps, low unemployment to further squeeze Canadian businesses: Desjardins

Hospitality and retail sectors are most at risk

Chefs prepare a meal at a restaurant's kitchen. (Photo by OLIVIER CHASSIGNOLE / AFP) (Photo by OLIVIER CHASSIGNOLE/AFP via Getty Images)
As of February, “over 50% of outstanding job vacancies" were in hospitality, retail and other sectors, says Desjardins economist Randall Bartlett. "This despite outsized hiring, particularly in accommodation and food services and retail trade.” (Photo by OLIVIER CHASSIGNOLE/AFP via Getty Images) (OLIVIER CHASSIGNOLE via Getty Images)

With various unemployment figures at or near record lows, the Canadian government’s planned limits on non-permanent residents (NPRs) will add to the struggles of the hospitality and retail sectors, a Desjardins economist says.

“Some have argued that higher wages will persuade people to return to the labour force, but there is little evidence of people waiting on the sidelines to work,” Randall Bartlett, Desjardins Group’s senior director of Canadian economics, wrote in a note on Thursday.

“For sectors of the economy that emerged from the pandemic battered and bruised, the federal government’s plan to reduce NPR admissions will make an already challenging situation even more difficult.”

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Canada's unemployment rate edged up to 6.2 per cent in May, according to Statistics Canada, in line with forecasts.

The shortage of people waiting to work presents a future problem for employers in food, accommodation and other sectors that typically employ many NPRs and that may not be able to depend on that source of labour.

“Unfortunately, these are also among the sectors most likely to be struggling coming out of the pandemic and to have experienced a surge in insolvencies at the start of 2024,” Bartlett said.

While this should increase the job vacancy rate and thus raise wage growth, Bartlett writes, that would be “likely not enough to meaningfully impact inflation … because weaker overall demand from fewer NPRs should weigh on underlying inflation.”

Ottawa announced on March 21 that it would seek to reduce the proportion of NPRs — a group that includes students, asylum seekers and temporary workers — from its current 6.2 per cent to five per cent by 2027.

According to Statistics Canada, NPRs are most likely to be employed in accommodation and food services; retail trade; transportation and warehousing; healthcare and social assistance; and educational services.

Bartlett writes that as of February, “over 50% of outstanding job vacancies were still in these same sectors, up from about 45% prior to the pandemic. This despite outsized hiring, particularly in accommodation and food services and retail trade.”

The employment landscape in 2024 is simply not favourable to those industries, Bartlett notes, with Statistics Canada’s most comprehensive underemployment figures “at or near record lows for all age groups.”

“At the same time, there are also very few Canadians who are not in the labour force but want to work,” Bartlett said. “Among Canadian youth, the share of people not in the labour force who want to work hit 6.9 per cent in 2023, the lowest level since records began in 1997.”

Bartlett writes that the labour situation may spur some businesses to innovate to increase productivity and reduce a dependence on low-cost, temporary labour. “Given that these sectors have had relatively low productivity historically, this may provide a positive tailwind to national-level productivity,” he said.

John MacFarlane is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jmacf. Download the Yahoo Finance app, available for Apple and Android.