Late in 2025, Statistics Canada released data showing a contraction in the Canadian population for the first time in years, driven by a marked slowdown in immigration and a persistent natural decrease where deaths outnumber births. Quarterly census estimates indicate a roughly 0.2 per cent drop in total residents in the third quarter of 2025, bringing the national total to around 41.6 million. This represents only the second quarterly population decline outside of pandemic lockdowns and signals a structural shift in Canada’s demographic trajectory. 

At the heart of this reversal are policy and demographic dynamics that have intersected with broader economic and social trends. After years of record-setting immigration inflows that fuelled robust labour force growth and helped cushion the impact of ageing, the federal government under Prime Minister Mark Carney has tightened targets for temporary residents, notably international students and certain work permit categories, aiming to reduce non-permanent residents to about 5 per cent of the population by the end of 2027. 

Even before the third-quarter decline, population growth was slowing sharply. Quarterly estimates showed near-flat growth in the first half of 2025, with natural increase already negative as deaths outpaced births, a pattern consistent with long-term fertility rates well below replacement levels. 

The Labour Market at a Demographic Inflection

For the labour market, this demographic shift matters because population dynamics are a fundamental supply element for employment growth. Over the past decade, immigration accounted for an outsized share of labour force expansion in Canada. Without it, the ageing of the baby boom generation and low fertility rates would have exerted even more downward pressure on workforce participation, especially among prime-age cohorts. 

With the slowdown in immigration, there are clear signals that the available pool of working-age individuals will tighten further through 2026:

  • Slower labour force growth. As migration inflows shrink, overall labour force growth is likely to slow. Permanent resident admissions are still planned to remain significant, but not enough to fully counteract lower temporary resident numbers and natural decline.  
  • Ageing population pressure. Canada’s median age is rising, reflecting a growing share of older residents. This demographic reality means that retirements will accelerate labour force exits, putting upward pressure on replacement demand just as inflows taper.  
  • Regional discrepancies. Some provinces, notably Alberta and Nunavut, are still experiencing modest population growth, buoyed by interprovincial migration or economic opportunity, while others, including much of Quebec and British Columbia, have seen stagnation or decline.  

For employers and staffing firms, these trends matter in practical terms. A tightening labour supply tends to intensify competition for workers, particularly in sectors already facing shortages such as healthcare, technology, construction, and certain service segments. Turnover costs, recruitment timelines, and wage inflation pressures are likely to be more pronounced where the demographic pipeline thins fastest.

Economic Implications for 2026

Beyond the labour market, the demographic slowdown has ramifications for broader economic performance in 2026:

  • Potential drag on economic growth. With fewer workers entering the labour market, trend gross domestic product (GDP) growth could be slower. Lower population growth can reduce overall demand for goods and services, temper capital investment, and narrow the tax base supporting public services. Independent analysis has previously concluded that lower immigration targets could shave real GDP growth by nearly two percentage points over a multi-year horizon.  
  • Shift in per capita dynamics. On a per-capita basis, slower population growth might lift measures like output per person, but this masks the uneven effects across regions and sectors. Firms unable to access needed workers face productivity constraints even if overall macro measures look more favourable.
  • Policy trade-offs. The tension between managing infrastructure and public service capacity versus sustaining labour supply will be a central policy debate in 2026. Debates over family policy, fertility incentives, retirement age, automation investment, and immigration levels are likely to intensify as governments seek durable solutions to demographic headwinds.  

What Staffing and HR Leaders Should Watch

For 2026, labour market planners and staffing executives should focus on several strategic priorities:

  • Refine demand forecasts to account for slower labour force growth and the potential for extended vacancies in key occupations.
  • Invest in retention and internal mobility to maximize the value of existing talent and mitigate the squeeze from reduced external supply.
  • Leverage automation and productivity tools where feasible to offset labour constraints without sacrificing service quality.
  • Engage with policymakers on immigration policy design to ensure that labour market needs are reflected in future levels plans, particularly for skilled categories critical to economic growth.

The population decline observed in late 2025 signals a pivotal moment in Canada’s demographic journey, with clear implications for the labour market and economy in 2026 and beyond. For staffing leaders, the challenge will be to adapt to a tighter labour environment while pressing for solutions that sustain both workforce vitality and economic dynamism.

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