Canadian unemployment is rising, and the country’s largest province is leading the trend. Ontario’s unemployment rate climbed to 7.9% in May—nearly a full point above the national average. A new report from BMO warns the province’s unemployment rate is now at a level not seen outside of the worst recessions. The problem is set to worsen as job creation, already failing to keep pace with labour force growth, slows even further.
Ontario Unemployment Rate Surges To Recession Highs
Ontario unemployment rarely reaches this level—and when it does, it’s really bad news. BMO warns that the province’s 7.9% unemployment rate hasn’t been seen in recent history outside of the pandemic and the global financial crisis. It’s also considerably higher than the national average.
“Note that the 0.9 ppt gap versus the national average is now one of the widest on record, also only seen during those two periods,” explains Robert Kavcic, Senior Economist at BMO.
He attributes the recent surge to an oversupply of labour.
Ontario Isn’t Losing Jobs, It’s Attracting Excess Workers
As explained last week, Canada’s rising unemployment is due to its aggressive population growth, not job losses. Canada is adding workers faster than it can create jobs. Since Ontario is the biggest recipient of immigration inflows, it’s no surprise that this problem is amplified in the province.
“The cause of Ontario’s rising unemployment rate since late-2022 has been almost entirely on the supply side. That is, labour force growth topping a torrid 4% y/y at one point could not possibly be absorbed by even a solid job market,” says Kavcic.
He further notes that the province is also a hub for non-permanent residents. This group includes international students and temporary foreign workers, both of which contribute to the labour surplus.
Ontario’s Job Market Is Moving From Oversupply To Lack of Demand
Ontario’s problems may get a lot worse in the coming months. The bank notes that job growth has lagged behind population growth, but it has at least remained steady. That changed in May, with job growth slowing to just 0.7% annually—nearly a third of the labour force’s growth rate. That doesn’t bode well for the outlook, even if the province slows its labour force growth.
“Looking ahead, we see the confidence-sapping trade war impacting Ontario relatively hard,” warns Kavcic. “This would morph jobless rate increases from being driven by supply, to now being driven by stalled employment growth.”