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A recent survey conducted by Canadian Manufacturers and Exporters, an industry association, found that in the past year alone labour shortages have resulted in economic losses totalling $13-billion.DARRYL DYCK/The Canadian Press

Persistent interest rate hikes are starting to cause Canada to shed jobs, even as certain sectors of the economy continue to experience labour shortages, according to a new report that analyzes the effects of the Bank of Canada’s rate increases on workers.

Between May and September this year, the Canadian economy lost close to 100,000 jobs, almost all of them full-time. The only points in the past when equivalent numbers of jobs were lost over a four-month period were during recessions, said Jim Stanford, the report’s lead author and director of the Vancouver-based Centre for Future Work, a think tank.

“We saw these job loss signals during recessions in the early 1980s, during the 2008-09 financial crisis and more recently in the early stages of the COVID pandemic,” Dr. Stanford said. “This is obviously a sign that labour demand is shrinking or dramatically cooling off.”

The shift in the labour market is occurring in the midst of one of the Bank of Canada’s fastest rate-hike cycles on record, a calculated effort to cool inflation by raising the costs of borrowing for households and businesses. The central bank is widely expected to announce another large interest-rate increase on Wednesday, which would be the sixth consecutive hike since March.

For months now, union leaders and left-leaning economists have been saying that the rate increases will result in significant job losses at a time when workers are already struggling with higher costs.

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Dr. Stanford’s report argues that a recession caused by monetary policy decisions would cement a pandemic-induced rise in inequality between employers and employees by flooding the labour market with newly unemployed job-seekers, weakening job security and undermining bargaining leverage for those who remain employed.

But even as labour groups warn of impending job losses, employers in some industries say they are still struggling to find talent.

A recent survey conducted by Canadian Manufacturers and Exporters, an industry association, found that in the past year alone labour shortages have resulted in economic losses totalling $13-billion. During the same period, the survey found, 62 per cent of manufacturers lost or turned down contracts and faced production delays because they lacked workers.

“So far, we have definitely not seen employers cutting back on hiring. It’s the opposite problem,” said Dennis Darby, president and chief executive of CME.

In the second quarter of 2022, Canada’s job vacancy rate – the number of available jobs as a percentage of the country’s total number of filled and unfilled positions – was 5.9 per cent, the highest it had ever been since 2015, when Statistics Canada first began collecting vacancy data. Canada’s unemployment rate is still low, at 5.2 per cent, but it has ticked up slightly since June.

According to Sean Strickland, executive director of Canada’s Building Trades Union, the country’s largest construction union, labour scarcity is a problem for employers in the industry, even though recent union wins have made construction work more attractive by boosting pay.

“For us, there are real and significant challenges in finding skilled workers, especially for things like new transit projects or new mining projects,” he said.

But if a more insecure job market is not currently a problem for workers, it might eventually be. In a recent forecast, the Canadian Federation of Independent Businesses said it expected employment growth to slow down in the third quarter of this year as a result of a more saturated labour market.

“Small businesses still say finding labour is a limiting factor for business growth. But slightly fewer businesses are saying that now as compared to a few months ago,” explained Simon Gaudreault, an economist with the federation. “Businesses will hold on to their employees as much as possible, but if the costs of doing business continue to rise, there’s a big question mark over whether they will continue to keep all their employees.”

Steven Ambler, an economist at the Université du Québec à Montréal, said the labour market has been in a “puzzling” state since the start of the pandemic. “We are in a very weird stage in the economy, where we see banks predicting that there’s going to be a recession, the possibility of increased unemployment as interest rates increase, yet the labour market is still tight,” he said.

Prof. Ambler believes one reason employers are reluctant to lay off workers, even as companies face rising costs and a slowing economy, is that workers’ earnings have actually declined, in relative terms, as a result of inflation. “Wages are ticking up, but real wages are falling behind. So, from an employer’s perspective, it is less costly to keep employees on staff,” he said.

Dr. Stanford, for his part, is skeptical that employers are truly struggling to match talent with available jobs. He believes they are just reluctant to pay workers more.

“It does seem ironic. You have employers complaining that they can’t find workers, yet you see total employment falling over the last four to five months,” he said.

“For years, employers had a situation where they did not have to plan recruitment because of a chronic oversupply of labour. We shouldn’t want to get back to that state, but unfortunately it seems like we are heading there.”