In a speech delivered in Montreal, Bank of Canada External Deputy Governor Nicolas Vincent outlined a set of structural shifts in Canada’s labour market that, he said, create meaningful challenges for monetary policy makers. Vincent identified three central patterns - persistently low turnover, a rise in long-term unemployment and a worsening employment picture for young workers - and cautioned that these are more than a temporary slowdown.
Vincent emphasized that the central bank's capacity to aid an economy experiencing structural change is inherently limited. He warned that lowering interest rates to stimulate demand while labour supply is constrained could stoke inflationary pressures and impede necessary economic restructuring. "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," he said.
Expanding on that point, Vincent added: "Moreover, if we were to stimulate demand when the issue is more structural, we could create inflationary pressures while also delaying necessary restructuring in economy." Those comments framed his argument that the policy trade-offs facing the Bank of Canada are becoming more complex as the labour market evolves.
On headline measures, Canada’s unemployment rate has stayed in a relatively narrow band, remaining between 6.5% and 7% over the past year. Vincent cautioned, however, that aggregate statistics can conceal important differences between transitory swings and deeper, longer-lasting shifts in how the labour market functions.
One of the most important trends Vincent identified is what he described as a "low hire, low fire" labour market. Employers, he said, have often opted not to lay off staff but are also reluctant to expand payrolls. That combination produces inertia: workers move jobs less frequently and the reallocation of labour from less productive sectors to more productive ones slows down.
"Low turnover is a sign that the labor market is less dynamic than it used to be. And this is not trivial: when it’s more dynamic, it’s better able to adapt to change. In a low hire-low fire labor market, there is a risk that the reallocation of workers from less productive sectors to more productive ones slows down," Vincent said. He noted population aging may be part of the explanation, pointing to Bank of Canada surveys in which some businesses reported difficulty replacing experienced staff and spending more time training new hires.
Alongside reduced mobility, Vincent pointed to rising long-term unemployment. The share of unemployed people who have been searching for work for more than six months has reached its highest level since the early 2000s outside of the Covid-19 pandemic years. From his perspective, a key structural factor appears to be a growing mismatch between the skills and experience workers possess and those employers are seeking.
Vincent said job postings over the past two years have increasingly required more experience than before, while the share of people who have never worked has grown. That widening gap between employer requirements and the available workforce supports the view that the increase in long-term joblessness is not purely cyclical.
The slowdown in hiring has been especially evident among younger workers. After the jobless rate for the 15-to-24 age group hit a record low of 9% in 2022, it has climbed to above 14% four years later. Vincent noted that young people now represent nearly a quarter of the long-term unemployed - a share that has more than doubled since 2022.
Vincent attributed part of the deterioration in youth employment to a surge in immigration between 2022 and 2024, which brought many young people into the labour market and intensified competition for entry-level positions. He noted the subsequent fall in immigration should help ease that pressure but said the mismatch between employer needs and worker skills remains an important factor.
On emerging factors, Vincent also raised automation and artificial intelligence as potential structural explanations. "Finally, AI is another plausible structural explanation," he said, pointing out that entry-level jobs could be most exposed to automation. He underscored, however, that it is too early to determine whether AI is a major driver of youth unemployment.
Taken together, Vincent's remarks outline a labour market that is less fluid and more stratified than in the past. That profile, he argued, limits how much monetary policy alone can accomplish in supporting the economy without generating inflationary pressures or postponing necessary adjustments within the workforce.
Summary
Nicolas Vincent, External Deputy Governor of the Bank of Canada, identified three structural labour-market trends - low turnover, rising long-term unemployment and deteriorating youth employment - that reduce the central bank's ability to rely on rate cuts to support the economy. He warned that stimulating demand in the presence of supply-side constraints could cause inflation pressures and delay needed economic reallocation. He pointed to population aging, a widening skills mismatch and a recent surge in immigration as contributors, and noted AI as a possible but unproven factor in youth job dynamics.