COVID-19 in Canada: An update on social and economic impacts

Carter McCormack

While Canadians have remained resilient through various waves of the COVID-19 pandemic, the direct and unforeseen impacts of the pandemic continue to affect households and businesses across the country. Canadians continue to report greater challenges related to mental health, particularly in sociodemographic groups that were disproportionally impacted by public health measures.

The pace of the Canadian economic recovery slowed during the first half of 2021 as supply chain disruptions and public health measures weighed on activity. Output contracted in the second quarter before rebounding in the third quarter. Employment recovered to pre-pandemic levels in September 2021, as third-wave restrictions eased. At the same time, rising consumer inflation outpaced wage growth, while higher input costs and labour shortages continued to cloud the business outlook.

A new presentation, COVID-19 in Canada: Year-end Update on Social and Economic Impacts, provides an integrated summary of recent developments as the pandemic continues to evolve. It highlights the ongoing impact of the pandemic on the social and economic lives of Canadians. The presentation updates and extends the analysis presented in COVID-19 in Canada: A One-year Update on Social and Economic Impacts, released in March 2021. It also examines possible longer-term changes as a result of the pandemic.

Canada has experienced demographic changes during the pandemic that will affect employment and labour force growth. Population growth in 2020 fell to levels not seen in 75 years, mainly because of a decline in immigration. In 2020, Canadian immigration reached just over one-half of target levels as Canada experienced the most significant net loss of non-permanent residents since 1972. This loss primarily reflected declines in student and work permit holders. As of the second quarter of 2021, immigration had been recovering to pre-pandemic levels seen in 2019, as international travel increased and restrictions eased.

Overall economic activity in Canada remained below pre-pandemic levels as recovery slowed during the first half of 2021. Real gross domestic product contracted in the second quarter, reflecting lower export volumes and a pullback in home resale activity. Spurred by strong demand for out-of-the-home purchases and higher incomes, household spending fueled output growth in the third quarter, along with exports, which partially rebounded.

As the Canadian economy-wide output continued to recover, employment strengthened due to third-wave restrictions being lifted. All of the cumulative gains in headline employment from May 2021 to August 2021 were in service industries, over one-half of which reflected higher employment in accommodation and food services. Over one-half of net employment gains during this period were among young workers, as employment among 15- to 24-year-olds rebounded to pre-pandemic levels by August 2021.

Total Canadian employment recovered to pre-pandemic levels in September 2021 and, as of November, was 1.0% above levels reported in February 2020. Employment in professional, scientific, and technical services has risen by 190,000 workers since the start of the pandemic.

While overall employment has recovered, long-term unemployment remained at elevated levels. As of November, 318,000 Canadians were experiencing long-term unemployment, over three-quarters more than before the pandemic. Over half of the net increase in long-term unemployment reflects higher unemployment among core-aged workers, led by increases among core-age men.

Along with long-term unemployment, job vacancies remained elevated into the summer months, highlighting potential mismatches between labour demand and supply. Job vacancies were at record levels in the second quarter and continued to rise from June to September. Vacancies in accommodation and food services were at more than twice the levels reported in 2019. As of the fourth quarter of 2021, over 3 in 10 businesses expected labour shortages to be an obstacle in the near term.

Rising input costs further clouded Canada’s business outlook. In the fourth quarter, rising costs related to labour, energy, capital, or raw materials were identified as a near-term obstacle by over two-fifths of businesses, as disruptions in supply chains continue to affect different sectors of the economy. In nearly two decades, consumer inflation has accelerated at the fastest pace, driven by upward pressure from gasoline, shelter costs, and consumer durables. In recent months, consumer inflation has outpaced annual wage growth, with average hourly wages—adjusted for changes in the composition of the workforce during the pandemic—rising at a slower pace than the headline Consumer Price Index. Meanwhile, sustained increases in new home prices, reflecting strong demand and rising input costs, put additional pressures on affordability.

Carter McCormack is an Economic Analyst at Statistics Canada in the Analytical Studies Branch.

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