Canada’s workforce is shrinking, as record numbers of older Canadians retire and fewer younger workers step up to replace them.

For the first time on record, outside the pandemic, the nation’s workforce will shrink more than the population this year, according to a new report from Royal Bank of Canada.

As the last of that historically huge generation, the baby boomers , nears retirement age, the number of older Canadians leaving the workforce has hit record highs.

Roughly 0.12 per cent of the workforce are retiring each month, about 25,500 workers, said RBC. That’s nearly double the number two decades ago.

“The youngest baby boomers will turn 65 in 2029 …, so the current wave of retirements has further room to run,” said RBC economists Nathan Janzen and Annie Zheng in the report.

“That wave may have peaked, but it has not yet crested, and likely won’t into the 2030s.”

The reality is these workers are not being replaced.

Births have fallen sharply since the baby boom following the Second World War and have been below replacement rates for decades, said the report.

Population aging has already reduced the labour force participation rate — the share of the population either working or looking for a job — by 4.5 percentage points from a decade ago.

“It will continue to push the share of the population available to work lower in the decade ahead,” said the report.

This won’t pose a challenge for businesses in the near term (see Leading Indicator below) because trade disruptions and the weaker economy have kept the unemployment rate high. But once this “unusually high level of unemployment is absorbed” labour shortages will loom.

The RBC report highlights how much Canada, like other advanced nations, relies on immigration to feed its labour force.

Government caps on newcomers initiated in 2024 have curbed population growth, and these restrictions are expected to be relaxed by 2027 as the number of temporary residents in the country approaches Ottawa’s targets.

However, that’s “not likely enough to fully offset structural labour supply headwinds in the future,” said RBC.

Already early signs of labour shortages have begun to emerge.

About a fifth of businesses in the Bank of Canada’s quarterly outlook survey reported them and said they expected them to get worse.

Canadian Federation of Independent Business surveys found that 17 per cent of businesses had trouble finding unskilled or semi-skilled workers, a rate that is nearing pre-pandemic norms even while the jobless rate remains high.

Today’s high unemployment rate gives policy makers room to cap immigration for now, said the economists, “but under the surface, longer-run structural headwinds against labour supply are building.”

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Behold the no-hire, no-fire job market.

Today’s chart from BMO Capital Markets shows how labour demand in Canada has flatlined, with combined payrolls and job openings little changed from a year ago — even three years ago. BMO senior economist Robert Kavcic said Canada’s labour force growth has also been flat because of the drop in immigration, keeping the unemployment rate fairly steady.

“Still, this just highlights the nature of the job market in Canada right now: Not a lot of hiring, not a lot of firing,” he said. “In this environment, firms will have to squeeze more productivity out of existing workforces.”

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Today’s Posthaste was written by Pamela Heaven with additional reporting from Financial Post staff and Bloomberg.

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