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Canadian employment plummeted in January and work absences due to illness soared to record levels as the Omicron variant drove a steep uptick in COVID-19 infections.

The country lost 200,000 jobs last month, the first decline in employment since May, Statistics Canada said on Friday. The unemployment rate rose to 6.5 per cent from 6 per cent. The job losses were about twice financial analysts’ median estimate of 110,000 positions.

But the fallout was not limited to layoffs. During the week of Jan. 9 to 15, roughly 1.6 million people were employed but worked less than half their usual hours, an increase of 620,000 from December.

Moreover, one in 10 employees were absent from work for all or part of that week owing to illness or disability – a record portion and about one-third higher than a typical January.

Friday’s labour report imparted a sense of déjà vu. Job losses were highly concentrated in Ontario (146,000) and Quebec (63,000) after those provinces tightened health measures. And once again, it was close-contact service industries that bore the brunt of layoffs: More than half of the month’s job losses were in hospitality.

But in past COVID-19 waves, employment has snapped back quickly as restrictions were loosened. That process is already under way with Omicron. On Monday, Ontario allowed several hard-hit industries – such as gyms and indoor dining – to reopen at a reduced capacity. Quebec is also gradually opening up.

“We expect a big bounce back when the February data are released next month,” James Orlando, senior economist at Toronto-Dominion Bank, wrote in a note to clients. “Canadian businesses and workers have been incredibly resilient through all the stops and starts over the last two years. This wave should be no exception.”

The situation was much different in the U.S., which saw employment jump by 467,000 last month, far exceeding analyst estimates. The U.S. has enacted few new restrictions to curb its Omicron wave, and despite the threat of infection and shifts in consumer spending, hospitality was the top industry for job gains in January.

To date, the U.S. has recouped 87 per cent of its COVID-19 job losses, while Canadian employment has been at or above prepandemic levels since October.

Despite the domestic setback in January, analysts said it was unlikely to alter the thinking at the Bank of Canada, which is poised to raise its key interest rate from 0.25 per cent in March.

The central bank has “seen enough data to know that inflationary pressures need to be contained, and that means rates need to rise,” Royce Mendes, head of macro strategy at Desjardins Securities, said in an interview.

Before the Omicron wave, the labour market was on a hot streak. Around 880,000 jobs were created in 2021, a record annual gain after a rough 2020, and labour participation rates had fully recovered in most age brackets. For many employers, the trouble was finding enough workers. Job vacancies soared to record levels, and while they’ve eased of late, they remain quite elevated by historical standards.

Given those challenges, the Statscan figures suggest many employers will bring back workers as soon as possible. The number of people on temporary layoff or scheduled to start a job in the near future rose by 120,000 in January, an increase of 131 per cent from December.

Last month wasn’t bleak in all industries. The goods-producing sector saw employment rise 23,000 in January, thanks to a hefty contribution from the construction industry.

Among people who worked between Jan. 9 and 15, more than four in 10 did their jobs mostly from home. Nearly one-third of people who don’t usually work any of their hours at home did so for at least part of the week.

The shift to remote work has been substantial. Statscan noted that about one-quarter of people work exclusively from home now. By comparison, the 2016 census reported that only 7.5 per cent usually worked at home.

Despite the labour shortage, wage growth remains tepid. Average hourly wages grew 2.4 per cent over the past year, slowing from December’s 2.7-per-cent pace.

“Labour shortages are going to continue into this year” and that should result in “more meaningful wage gains,” Mr. Mendes said. “That’s the key reason why the Bank of Canada is ready to hike interest rates now – the economy is healthy enough to generate things like labour shortages.”

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