Trade Tension and Weak Productivity Weigh on Canada’s Labour Market Outlook

May 28, 2026 – Trade uncertainty, weak productivity growth and technological change, along with demographic shifts, are reshaping Canada’s labour market, increasing risks for trade-exposed jobs and our future economic growth, according to a new report from the C.D. Howe Institute.

In “2025 Labour Market Review: Trade Uncertainty, Structural Pressures, and Policy Priorities for Canada,” authors Parisa Mahboubi and Tingting Zhang warn that labour market outcomes are becoming increasingly uneven across regions, sectors, and demographic groups as trade tensions, including the upcoming Canada-United States-Mexico Agreement (CUSMA) review, productivity challenges, demographic change and technological disruption converge at once.

“While Canada’s labour market has remained resilient in some areas, the roughly 13 percent of Canadian employment (about 2.6 million jobs) dependent on US demand are still vulnerable to trade disruptions and uncertainty,” says Mahboubi, Associate Director of Research at the C.D. Howe Institute. “This uncertainty continues to discourage firms from expanding, hiring, and investing in productivity-enhancing technologies.”

These pressures are disproportionately borne by certain demographic groups: young Canadians entering the workforce are facing some of the weakest labour market conditions in years, with softer hiring for entry-level roles, longer periods of unemployment and growth becoming increasingly concentrated in higher-skill occupations. Recent immigrants are also struggling, with more than one-third of those with postsecondary education remaining in jobs below their qualification level. Regionally, Newfoundland and Labrador was the only province that recorded net job losses, while Ontario and British Columbia recorded the largest declines in employment rates compared to 2024.

To strengthen labour market resilience, the authors call for improved federal-provincial coordination in responding to trade and geopolitical risks, reforms that better support youth employment and immigrant labour market integration, the removal of barriers limiting labour mobility across provinces, and policies that restore productivity growth through tax reform, regulatory modernization and investment in workforce skills development.

“Headline employment numbers alone no longer tell the full story of Canada’s labour market,” concludes Zhang, Policy Analyst at the C.D. Howe Institute. “Canadians need stronger workforce skills, better labour mobility, improved immigrant integration and higher productivity-enhancing investment to stay competitive and ensure living standards are sustained and improved over the long term.”

For more information, contact: Parisa Mahboubi, Associate Director of Research, C.D. Howe Institute; Tingting Zhang, Policy Analyst, C.D. Howe Institute; and Raquel Schneider, Communications Officer, C.D. Howe Institute, 647-805-3918, rschneider@cdhowe.org.  

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The C.D. Howe Institute is an independent not-for-profit research institute whose mission is to raise living standards by fostering economically sound public policies. Widely considered to be Canada’s most influential think tank, the Institute is a trusted source of essential policy intelligence, distinguished by research that is nonpartisan, evidence-based and subject to definitive expert review. 

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