Why Canada's Unemployment Rate Could Fall Even With Job Losses: The Demographic Shift Explained

A fundamental structural shift in Canada's job market means the unemployment rate could fall in the months ahead even if more jobs are lost than gained, according to a new report from RBC Economics.

The Demographic Drivers Behind This Shift

A growing wave of baby boomers retiring, coupled with immigration curbs limiting population growth, is causing a significant drop in the number of new jobs needed to keep the unemployment rate steady, the report by economist Nathan Janzen says.

As a consequence, "modest job losses that would normally trigger recession concerns would instead be entirely consistent with a stable or slightly declining unemployment rate in the year ahead."

Understanding the Breakeven Employment Rate

A central focus of the report is the breakeven employment rate — the number of new jobs needed to keep the unemployment rate stable. Because population growth is stagnating while boomers leave the workforce, that breakeven rate is "shrinking dramatically," Janzen says.

The federal government has taken various steps in the past two years to slow population growth, with caps placed on the number of foreign students and other non-permanent residents (NPRs). In particular, Ottawa aims to reduce the proportion of NPRs in the overall population from over seven per cent to five per cent by the end of 2027. Statistics Canada population data last December revealed a quarterly decline, an occurrence unprecedented outside the COVID-19 pandemic.

Impact of an Aging Population

Canada’s aging population has already caused the labour participation rate — the proportion of the population working or actively seeking employment — to fall four percentage points since 2008, Janzen writes. Furthermore, he notes, "baby boomers will continue to hit retirement age in greater numbers over the remainder of the decade."

Recent years show the impact that swinging population growth and demographic changes can have on the job market. Average monthly job growth was 45,000 in 2023 and 32,000 in 2024, Janzen notes, "the strongest two-year pace on record outside the pandemic recovery."

However, the unemployment rate rose almost two percentage points over that time, a rise Janzen says is "historically indistinguishable from a recession." During that period, when Canada’s population was growing rapidly, the breakeven employment rate was "closer to 60,000 per month."

Future Projections for Job Market Stability

Immigration policy changes since then have caused that figure to plummet. "In 2025, reduced temporary resident arrivals already lowered the breakeven employment rate to 25,000 jobs per month," Janzen writes. Looking ahead, he adds, "Canada’s breakeven employment growth rate is on track to be slightly negative — about -10,000 jobs per month on average in 2026."