Some of Canada’s largest companies have been slashing thousands of positions this year to rein in costs, a situation that could snowball into a bigger labour trend as employers cope with higher interest rates and a slowing economy.
In recent weeks, the likes of Bank of Montreal BMO-T, Rogers Communications Inc. RCI-B-T and BCE Inc. BCE-T have made the decision to cut jobs for varying reasons. Shopify Inc. SHOP-T has made sweeping cuts on two occasions over the past year. In March, U.S. retailer Nordstrom Inc. said it was shuttering all Canadian locations, affecting 2,500 jobs.
So far, these high-profile cutbacks aren’t adding up to much of a trend. Layoff rates in Canada are lower now than before the pandemic, which is also the case in the United States. Labour conditions remain tight: At 5.2 per cent, Canada’s unemployment rate is not far above a record low set last year.
Still, the job market is shifting away from a period of exuberance. After eight consecutive months of job gains, the economy shed around 17,000 net positions in May. Job vacancies are also tumbling from record heights.
Moreover, the Bank of Canada is trying to cool the labour market as part of its inflation-fighting campaign, which has seen interest rates climb to their highest levels in more than two decades.
The concern is that today’s layoffs, particularly as companies struggle with higher debt-servicing costs and tougher economic conditions, could be a harbinger of darker days in the job market.
“We’re still in a low-unemployment world,” said Brendon Bernard, senior economist at hiring site Indeed Canada. But other indicators point to a slowing labour market. “When it comes to job postings and job opportunities, that’s where the action has been.”
As the country emerged from pandemic lockdowns, there was a surge of labour demand and intense competition for workers. The number of vacant jobs soared to a peak of roughly one million in May, 2022, according to Statistics Canada. Since then, job vacancies have fallen by around 210,000 positions or 21 per cent, and the pullback has been sharp in some white-collar industries. Even so, overall job vacancies remain higher today than before the pandemic.
In software development, the fall has been even more precipitous. After hitting “astronomical highs” last year, job postings on Indeed for such positions have cratered to below prepandemic levels, Mr. Bernard said.
Big Tech is arguably the poster child for the hiring spree and subsequent cooldown. Online retail platform Shopify laid off 10 per cent of its staff last summer, or roughly 1,000 workers, admitting that it overestimated the consumer shift to e-commerce brought on by the pandemic. Then in May, the Ottawa-based company announced another 20-per-cent reduction to its work force.
Shopify is hardly alone in making cuts. Tech companies, from nascent startups to established giants, have been laying off staff as they face pressure from investors to get costs under control.
Tech firms “expanded like crazy, beyond their means,” said Travis O’Rourke, president of recruiting agency Hays Canada.
The tech-driven hiring boom affected other industries. As those firms were hoovering up talent, “we had to respond to that with aggressive hiring,” Dave McKay, chief executive officer of Royal Bank of Canada, said on an analyst call in May. The trouble, Mr. McKay added, is that RBC “overshot by thousands of people. It’s a real drag in our cost structure.”
However, RBC RY-T hasn’t announced major layoffs. To reduce costs, Mr. McKay said the bank will manage its headcount through natural turnover of employees and slow its hiring.
The RBC approach is part of a bigger discussion in economics. Many analysts have theorized that, rather than lay off employees, companies might reduce labour demand by taking down job postings or putting a freeze on hiring. As workers voluntarily leave their jobs – say, for retirement – businesses may not immediately fill those roles.
In recent months, the Canadian labour market has wildly exceeded expectations. Through April, the country added 414,000 jobs over the previous year, despite a rapid series of interest-rate hikes meant to slow the economy.
Labour demand remains quite strong in some industries. As of April, there were more than 150,000 job vacancies in health care and social assistance, a record high. Mr. O’Rourke said there’s also dire need for skilled trades.
“If you work in construction, you’ve got a retiring work force that seems to get worse every single year,” he said. “We’re not replacing electricians and plumbers and project managers as quickly as we need to.”
Mr. Bernard suggested that companies could be hanging on to workers because, contrary to many predictions, the country has avoided a recession – at least so far.
“It would be both a hit to morale internally to lay people off, and a challenge to hire people again or ramp up recruiting, if things turn out better” than expected, he said.
Still, a downturn could be merely delayed. To tame inflation, the Bank of Canada is widely expected to raise interest rates again in the coming months, a move that would put even more pressure on companies.
Already, there are fissures in the corporate sector. Business insolvencies are spiking of late, while the number of active businesses has fallen by 4,000 over February and March, according to an estimate from Statscan.
“We shouldn’t be too confident that everything’s gonna go smoothly over the next year,” Mr. Bernard said. More layoffs “could knock us out of the current situation. But luckily, it hasn’t happened yet.”