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Canadian employers are looking to ramp up hiring as well as employee compensation through the first half of the year, while simultaneously taking measures to protect against a sudden change to the economic landscape.

With unemployment near a record low, the Canadian labour market remains historically competitive, despite widespread layoffs in the tech sector, inflation challenges, rising interest rates and fears of a looming recession. In response, businesses plan to increase spending on compensation to compete for talent in the first half of the year but are also leaving themselves some room to manoeuvre should economic circumstances change over the coming months.

A recent survey of 440 Canadian employers by HR consulting firm Normandin Beaudry found that half plan to increase their 2023 salary budgets for non-unionized workers by an average of 4.7 per cent. That’s well beyond the record high of 3.8 per cent recorded in the summer of 2022 and 4.2 per cent in the fall. Furthermore, 43 per cent of respondents say they are squeezing an average of 1.4 per cent out of other areas of their 2023 budgets to address future hiring challenges.

“It’s a surprise because [payroll] budgets had been stagnant for the last 10 years,” said Darcy Clark, Normandin Beaudry’s senior principal of compensation. “When inflation is in the 1- to 2-per-cent category budgets are at 2.5 to 3 per cent, so just above inflation. Now with the quick spike in inflation we’re pushing 5 per cent in salary increases.”

Mr. Clark added that employers are increasing the salary budgets to remain competitive in a tight talent market, especially for positions they consider critical. They’re also using those funds to keep salaries consistent with inflation and ensure that more tenured staff see salary increases on par with the competitive compensation packages offered to new hires.

While Canadian employers are giving themselves as much ammunition as they can afford heading into the next phase of the talent war, Mr. Clark said they’re also leaving themselves room to adjust should the market take a turn for the worse. He said that most of the salary increases reported in the survey will go into effect in the spring as a one-time adjustment, and that future increases are not guaranteed.

“By April 1st the dust will be settled on these projections, so any changes to market conditions in June or July are independent; they’re hedging against a soft landing,” he said. “Employees need to be aware that this may be a one-off or two-cycle approach before we get back to normal.”

Employers are also taking a similar approach when managing head count by filling both vacated and entirely new positions with a greater proportion of temporary contract hires. According to a recent survey of nearly 1,450 Canadian hiring managers by Robert Half Canada, 51 per cent anticipate adding new permanent positions in the first half of 2023, while 65 per cent intend to hire more contractors.

“When you bring on a contract person it’s a variable cost, rather than a fixed cost,” said Robert Hosking, the senior regional director for Robert Half Canada. “If a company is thinking that there may be a degree of uncertainty and they don’t want to make a commitment with a full-time employee, going the contract route is a great option.”

Mr. Hosking said the findings demonstrate the strange position employers now find themselves in, as they seek to increase hiring in a tight labour market while also managing the threat of an economic slowdown.

“There’s a lot of concern from HR executives about how much to increase salaries because of all of the uncertainty,” said Pedro Antunes, the chief economist for the Conference Board of Canada. “Executive teams are saying we need to raise wages to attract and retain workers, but at the same time they’re very conscious that everyone is talking about a recession, and the possibility of either a soft or harder landing.”

Should the economy fall into a recession later in the year, however, Mr. Antunes said it wouldn’t result in the widespread job losses seen in 2008 and prior recessions. Even in a slowing economy he said the Canadian labour market is likely to remain competitive, in large part because of the number of baby boomers retiring from the work force each year.

The primary solution, he said, is increasing the share of immigrants and non-permanent residents who can fill those vacant roles. Canada welcomed almost three quarters of a million permanent and non-permanent residents through the first three quarters of 2022 as part of a strategy designed to take some pressure off the labour market, and plans to add nearly half a million more immigrants in each of the next three years.

“It not only allows us to expand our productive capacity and catch up with demand – thus relieving inflationary pressures – but it also allows us to take pressure off of wages, because we’re increasing the supply of workers,” said Mr. Antunes.

“Workers might not want to hear that, but what we’re trying to avoid here is that spiral where there’s just too much demand for workers, creating artificially high wages that aren’t associated with productivity gains, because that’s just not sustainable.”

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