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Canada’s labour market has entered 2019 in good shape. Just how good is a matter of debate.

On the one hand, employment ended 2018 on a roll. Statistics Canada reported that the economy added another 9,300 jobs in December – a modest rise, granted, but coming off November’s enormous 94,000-job surge, merely holding onto those gains was impressive enough. The unemployment rate ended the year at a 44-year low of 5.6 per cent. Not bad, eh?

Well, yes, not bad – but not great. For 2018 as a whole, the labour market added 163,000 jobs – less than half of 2017’s 427,000-job increase, and well below the post-Great Recession average. When you consider that the working-age population grew by 426,000 last year, those job gains look barely adequate.

We can look forward to a similarly barely adequate 2019 – particularly with the tepid prospects for the oil sector that have arisen over the past few months. Economists see employment growth of probably in the neighbourhood of 150,000, or something close to the growth pace of the labour force – which will keep the unemployment rate holding fairly near its current level.

Which is, really, just fine. After booming hiring in 2016 and 2017 (adding a combined 650,000 jobs), the Canadian economy has already milked most of the available workers out of its labour market. The current multi-decades-low unemployment rate is compelling evidence of this. So is the Bank of Canada’s quarterly Business Outlook Survey, released just before Christmas, which showed that the proportion of companies reporting labour shortages is at its highest level in a decade. There isn’t a lot more hiring on the way if only because, frankly, there aren’t many available Canadians left to hire.

“What we’re left with is an economy that remains very close to full employment, that’s now grinding out job gains roughly in line with labour force growth,” said Douglas Porter, chief economist at Bank of Montreal.

This is actually a very happy stage in the economic cycle – it’s when strong employment growth gets replaced with strong wage growth, as employers are forced to pony up more money to attract and retain the workers they need amid tight labour supply. Which leads us to the biggest asterisk attached to the apparently healthy Canadian labour market entering 2019: that wage growth has yet to materialize.

Statscan’s jobs report pegged average hourly wage growth at 2 per cent year-over-year at the end of 2018 – barely enough to cover inflation, and nothing like the kind of wage growth economists are used to seeing at full employment. While wages did improve a bit over the November reading, wage growth has nevertheless been drifting sideways, at best, over the past several months – just when economists had expected the pace to pick up.

In a Globe and Mail interview last month, Bank of Canada Governor Stephen Poloz argued that the key ingredient still missing from the labour market is “churn” – the movement of employees from one job to another as they take advantage of a seller’s market for their services, and “trade up” to more attractive (and better-paying) jobs. Once that happens, he said, it should trigger the anticipated wage growth.

Churn can be difficult to spot in the labour data, as Statscan doesn’t specifically gather information on this sort of labour turnover. But the economists at Royal Bank of Canada have zeroed in on one proxy for churn in the data: The number of unemployed people in Statscan’s monthly labour force survey who said they left their old job because they were “dissatisfied” with it.

As RBC senior economist Nathan Janzen puts it, these are people “who feel confident enough to quit their job and be unemployed” – in other words, people who believe they can do just the kind of trading up that Mr. Poloz was talking about.

And those data suggest that perhaps the churn has begun. RBC’s analysis shows that the share of "unemployed-dissatisfied” in the labour force rose to a post-recession high last year.

Mr. Janzen said this churn indicator is particularly important to the question of wage growth.

“A lot of wage growth comes from switching jobs,” he said. He noted that “the wages for new hires have been significantly stronger than for existing employees” in recent months.

If this churn continues to pick up, then we should see a broadening of those higher wages. If that happens, it will signal a labour market shifting into a new phase of prosperity in 2019. Without it, we’ll have little choice but to conclude that the labour market may have already peaked in 2018 − without the expected wage growth − and is drifting into a stall.

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