So, how do we explain this situation? The cyclical interpretation is simple: young people tend to work in sectors that are sensitive to swings in the economy, such as retail or culture and recreation. When the economy slows, unemployment tends to rise more sharply among young people compared with others.
That said, the magnitude of the rise in youth unemployment suggests other factors are at work. One possible factor is demographics. Between 2022 and 2024, there was a large influx of young people from abroad. This intensified competition in Canada for lower‑skill and entry‑level jobs. Following that period of rapid growth, immigration has been reduced substantially. So we can hope to see an eventual normalization in the youth unemployment rate.
Another structural factor concerns the mismatch between employers’ needs and the profiles of workers that I mentioned earlier. Given that the share of jobs requiring little experience is falling, young people could find it increasingly difficult to get into the labour market.
Finally, AI is another plausible structural explanation. Job finding rates have fallen the most in occupations that are most exposed to AI. It’s harder to find work doing tasks that can be easily automated with AI, and these tend to be the entry‑level jobs where young people are overrepresented. That said, it would be premature to conclude that AI is the determining factor. For example, the rise in youth unemployment has been more pronounced in Canada than in the United States, where adoption of AI by businesses appears to be higher. This suggests that factors specific to Canada have been more important than a global phenomenon such as AI.
Either way, persistently high youth unemployment matters. It can reduce future earnings, delay the accumulation of experience and knowledge, and lead some young people to give up on joining the labour market. Now, if they do this to further their education or training, then it’s less of a concern, especially if it’s to gain skills that are in high demand. And in recent years, the share of young people who aren’t working, in school or in training has been relatively stable. But if it rose by a lot, that would raise concerns about young people’s human capital development and their chances of long‑term attachment to the labour market.
We will be closely monitoring indicators such as the availability of entry‑level positions, trends in occupations that are exposed to AI and the impact of shifts in immigration policy. If young people fare better as the economy recovers, then their recent challenges may be more cyclical. But if demand for less experienced workers remains weak, it would suggest a more structural problem.
Overall, it’s important to remember that these three trends are interconnected. Low turnover in the labour market leads to longer periods of unemployment. And new entrants, especially young people, bear the brunt.
Adapting to (structural) change
Regardless of the uncertainty around the scale and scope of the structural forces shaping our economy, it’s important to be thinking now about how to respond and adapt. These forces could have profound impacts on employment in Canada.
For example, given that global trade will likely continue to be reshaped, we need to keep seeking out new trade partners, diversifying our exports and finding ways to make Canadian businesses more competitive. The weakness in employment over the past year has been concentrated in the sectors most exposed to trade with the United States. So we need to make it easier for the affected workers to transition to other sectors, and to upgrade or broaden their skills.
We also need to keep a close eye on the rise of AI. The pace at which it is evolving, and the fact it could automate many tasks, naturally makes people anxious. We can see this in our consumer surveys. Past waves of innovation have ended up creating more jobs than they have eliminated. But they still caused a lot of upheaval, and difficult transitions for many workers.
As my Governing Council colleague Michelle Alexopoulos recently explained in a speech on AI, growing adoption of this technology could lead to a major structural change. However, as she pointed out, much will depend on the scale and speed of adoption, whether AI complements or replaces existing tasks and services, and how effective it is at improving efficiency. Currently, Canadian businesses don’t seem to be adopting AI in a widespread manner. But adoption could pick up. So we need to be thinking about how to reposition the workers whose jobs could be affected, and how to ease their transition.
Among the major structural forces that we face, demographic change will no doubt play an important role in the years ahead. Population aging is a powerful, foreseeable force that brings significant risks—from pressure on public finances, to a possible slowdown in economic dynamism. Population growth through immigration isn’t sufficient to offset the effects of aging on participation in the labour force. This underscores the importance of increasing participation across all age groups and of improving our labour productivity.
Faced with structural shifts and a more volatile and uncertain environment, we need to rethink our approaches to education and training. This starts by asking ourselves the relevant questions. How can we better prepare young people for the new realities of the labour market? How can we make it easier for people who lose their jobs to re‑skill quickly and find new opportunities? What role should educational institutions play, knowing people may have to change careers more often? How can we establish a system of lifelong learning and promote training on the job?
These questions are more important than ever, and we need to think about them—collectively. In the presence of structural change, we all have a role to play in ensuring that Canada remains competitive and able to meet current and future challenges.
What all this means for the Bank
Before I finish, I’d like to come back to why it’s so important for the Bank to understand the nature of the shocks and forces our economy is facing and explain what we’re doing to gain more clarity and adapt accordingly.
Traditionally, central banks respond to cyclical ups and downs in the economy by raising or lowering the policy interest rate. Our aim in doing so is to influence demand so that inflation remains low and stable. This is at the heart of our work—it’s the raison d’être of monetary policy.
However, with structural change, our options are more complicated. While monetary policy can, to some extent, help the economy transition during periods of restructuring, it cannot compensate for lower supply caused by factors such as trade friction or population aging. Moreover, if we were to stimulate demand when the issue is more structural, we could create inflationary pressures while also delaying necessary restructuring in the economy.
To make the right decisions, we need to be able to identify the nature of changes in the economy. As I mentioned, one of the main challenges we face in this area is to accurately distinguish structural changes from cyclical fluctuations, particularly in real time.
That’s why we are exploring more granular data to better understand what is happening beneath the surface. Our surveys of businesses and consumers, along with our regional analysis and expanded outreach, are incredibly valuable. Together, these help us better understand businesses’ attitudes and needs regarding employment, how workers are adapting, and how all that affects jobs, wages and prices. We’re also refining a new multi‑sector model that will help us better understand the implications of structural change for the Canadian economy, and for the evolution of inflation.
But we need to remain humble and clear‑eyed. The big forces affecting the economy will always carry some uncertainty, and the current environment is especially complex. Risk management is therefore essential. We regularly use scenario analysis to help us better understand and anticipate the range of possible outcomes before making a decision. This type of exercise is even more critical in a world where structural changes and shocks are multiplying and accumulating. And, if the situation warrants, we’ll make these scenarios public, as we have in the context of both tariffs and the conflict in the Middle East.
Even though we have very little influence over the impact of structural change in the economy, we can ensure that inflation remains low and stable as the labour market adjusts. The Bank also has a responsibility to foster dialogue about the challenges and transformations facing our economy. We must push the boundaries of our analysis and communicate our findings as clearly as possible, so households, businesses and governments can make informed decisions too.
Conclusion
It’s time for me to conclude.
I hope I have given you a good overview of our reading of the labour market in Canada. I also hope I’ve shed some light on how the major trends we’ve been seeing in recent years are helping us think about the scale and nature of structural change in our economy.
To conduct monetary policy effectively, we need to be able to clearly distinguish between cyclical fluctuations and lasting transformations. Thorough analysis of the labour market can help us see things more clearly.
But the reality is that the more our economy faces shocks accompanied by structural change, the less clear‑cut our monetary policy decisions will be. When faced with structural change, even though we can support the economy to some degree during periods of restructuring, we can’t choose its final destination. Our goal remains to ensure inflation is low, stable and predictable.
By honouring this commitment, the Bank will help workers, businesses and governments focus on adapting and on finding opportunities in the profound changes that we face.
Thank you.
I would like to thank André Binette, Laurence Savoie‑Chabot and Olena Kostyshyna for their help in preparing this speech.
