A Fragile Recovery: Why Canada’s Job Market Still Feels on Edge

Canada closed out 2025 with a labour market that looks stable on the surface but uneasy underneath. December’s jobs report, showing a modest gain of 8,200 positions alongside a jump in unemployment to 6.8 per cent, captures the uncomfortable reality facing workers and employers alike: the recovery is real, but it is far from smooth.

At first glance, adding jobs should be good news. Yet the rise in the unemployment rate from 6.5 per cent in November tells a more complicated story. More Canadians are looking for work, but not enough new jobs are being created to absorb them. That mismatch not outright job losses is what’s pushing unemployment higher.

Economists are careful not to call this a setback. Claire Fan of RBC describes the situation as “choppy,” with slack in the labour market being absorbed only gradually. In other words, Canada is healing, but slowly and unevenly. The labour market is not collapsing it’s drifting.

This drift is visible in the numbers. While 8,200 jobs were added in December, the total number of unemployed Canadians rose by 73,000 to 1.6 million. Meanwhile, the employment rate the share of the population aged 15 and over that is working remained stuck at 60.9 per cent. That flat reading suggests job creation is barely keeping pace with population growth, let alone reversing earlier damage.

Who is getting the jobs also matters. December’s gains were concentrated in health care and social assistance, a sector that has been propping up employment growth for months. “Other services,” including personal and repair services, also added jobs. These are important roles, but they do not necessarily signal a broad-based economic rebound.

At the same time, job losses in professional, scientific and technical services traditionally seen as high-skill, high-growth sectors are worrying. Losses in accommodation and food services and utilities further underline how uneven the recovery remains.

Perhaps most concerning is the generational divide. Youth aged 15 to 24 lost 27,000 jobs in December, pushing youth unemployment up to 13.3 per cent. In contrast, workers aged 55 and older gained 33,000 jobs. For young Canadians already struggling with high housing costs, student debt, and rising living expenses, weak job prospects risk leaving long-term scars.

The nature of employment is also shifting. Throughout 2025, part-time work grew much faster than full-time employment. That trend may help explain why employment numbers can rise while economic anxiety remains high. Part-time jobs often mean less income stability, fewer benefits, and limited career progression hardly reassuring in a high-cost environment.

Brendon Bernard of Indeed notes that December’s softer showing follows several months of stronger job growth, and given the volatility of the Labour Force Survey, some cooling was to be expected. Still, his assessment that the “underlying trend is probably somewhere in between” is hardly comforting. Somewhere in between strength and weakness is not where an economy wants to linger for too long.

Hovering over all of this is the trade war with the United States. Tariffs and ongoing uncertainty are weighing heavily on employer confidence. Businesses hesitant about future demand are unlikely to expand payrolls aggressively, no matter how much they might want to. Bernard warns that without a meaningful pickup in economic growth, hiring appetite is unlikely to rebound in a way that materially improves jobseekers’ prospects.

That caution is echoed by Deloitte Canada, which forecasts that businesses will pull back on hiring plans through at least the first half of 2026 as tariffs dampen demand for Canadian goods and services. If that forecast proves accurate, the labour market could remain stuck in this uncomfortable holding pattern for months to come.

Canada’s unemployment rate peaked at 7.1 per cent in late summer 2025 the highest level since 2016, excluding the pandemic years. While December’s 6.8 per cent is below that peak, it is still a reminder that the labour market has not fully regained its footing.

The takeaway from December’s report is not panic, but it is also not relief. Canada’s job market is moving forward, but with hesitation, imbalance, and vulnerability to external shocks. Until uncertainty around trade eases and job growth becomes broader, stronger, and more full-time, many Canadians will continue to feel like the recovery exists more in theory than in their everyday lives.