Why is youth unemployment so high in Canada?

One of the reasons why youth unemployment in Canada is so high is the sheer number of young people in the country entering the employment age, according to an expert.

Specifically, the youth (15 to 24 year olds) unemployment rate rose to 14.2% in July, the highest non-pandemic reading in over a decade, notes Robert Kavcic, senior economist and director at BMO Economics, citing data from Statistics Canada (StatCan).

“By comparison, prime-age unemployment is up 0.4 percentage points year-over-year (YoY),” he says.

Also, the unemployment rate for returning students was 17.2% in July, the highest non-pandemic rate for July since 2009.

“Part of the challenge is that many service businesses went through a generationally-difficult shock during the pandemic and some dislocation persists; but it mainly reflects labour force saturation from historic immigration —namely lower-skilled temporary foreign workers and international students,” says Kavcic.

Even graduates with advanced degrees are finding it hard to land employment, according to a previous report.

Other factors affecting youth unemployment

Youth hiring has slowed, growing at a rate of 0.2% year-over-year, and the participation rate has fallen, explains Kavcic.

“But before we start calling kids lazy, note that the population in that cohort has exploded by almost 12% in the past two years (not a typo). No job market could ever be expected to absorb such an influx, and this one certainly isn’t either,” he says.

Overall, the July Labour Force Survey from Statistics Canada (StatCan) shows an unemployment rate of 6.4% in Canada.

That number is up 1.6 percentage points from the 2022 cycle low and 0.9 percentage points from the previous year, notes Kavcic.

Meanwhile, the employment rate has plunged below 61%, matching the lowest level since 1999.

“The job market simply can’t absorb the influx of people, and hasn’t been able to for a while,” he said.

Previously, one expert cited the number of workers from other countries coming to Canada as one of the reasons behind the plunging youth employment in the country.

‘Sharp slowdown’ in private sector jobs

Also, private-sector employment was up 0.6% YoY in July and 0.5% annualized over the latest six months.

That’s “a sharp slowdown from earlier in the cycle,” says Kavcic.

“Headline employment has masked this weakness because the public sector keeps on hiring, with employment there up a massive 4.8% y/y. Outside of the post-pandemic rebound, that’s among the strongest rates of public-sector hiring on record back to 1976. Since the end of 2016, public administration specifically has grown at a 3.6% annualized pace, more than twice that seen in the private sector. In other words, there are structural and cyclical factors at play here.”

Also, industries that are typically considered “more at the mercy of the economic cycle are exhibiting more hiring weakness” and the Canadian job vacancy rate continues to fall, he adds.

Two-thirds of graduates across the world are concerned that artificial intelligence or automation will make it more difficult to secure jobs, according to a previous report.