Canada's Hiring Cools as a Deepening Skills Chasm Emerges

TORONTO, ON – December 29, 2025 – Canadian businesses are tapping the brakes on hiring plans for 2026, signaling a significant cooling in the labor market. However, this slowdown isn't rooted in economic pessimism but in a growing and critical challenge: a widening chasm between the skills companies need and the talent available. A new survey reveals that while compensation is becoming less of a hurdle, a stark lack of relevant experience, hard skills, and soft skills is leaving key positions unfilled across the nation.

A Climate of Caution Replaces Hiring Spree

The unbridled hiring optimism of recent years is giving way to a more measured approach. According to a recent survey from Express Employment Professionals and The Harris Poll, the number of Canadian companies planning to increase their headcount in the first half of 2026 has dropped to 44%, a notable decline from 51% in the same period last year. While a majority (67%) still describe their outlook in positive terms, this figure is also down from 71% a year prior, with “cautious” being a descriptor used by a quarter of all companies.

This sentiment of caution appears to run deeper than general economic forecasts. While organizations like the OECD and the Bank of Canada project slow but strengthening GDP growth for Canada in 2026, businesses are hesitating to expand their teams. For the 44% of companies that are hiring, the primary drivers are managing an increased volume of work (55%) and filling newly created positions (38%). Conversely, among the 10% planning to shrink their workforce, cost reduction is the overwhelming reason (69%), followed by adjustments to government policies and a decline in demand.

This data paints a complex picture: the economy is expected to grow, yet fewer companies are hiring. The disconnect points directly to a fundamental shift in the labor market's core challenges, moving away from broad economic recovery and toward the specific capabilities of the workforce.

The Skills Gap Becomes the Main Obstacle

For years, the narrative around hiring challenges centered on competitive pay and benefits. That story has changed. The new survey indicates that compensation-related barriers are falling, with fewer employers citing uncompetitive pay (17%, down from 27%) or benefits (9%, down from 14%) as primary issues. The real roadblock, affecting over a quarter of companies (29%) with positions they cannot fill, is a profound skills deficit.

The data is stark: 49% of hiring managers say applicants lack relevant experience, 47% point to a deficit in necessary hard skills, and 44% find candidates deficient in crucial soft skills like communication and problem-solving. This skills mismatch is not just an inconvenience; it's an economic drag, with some estimates suggesting it cost the Canadian economy billions in lost productivity in 2024.

The demand is particularly acute for technical expertise in areas like artificial intelligence, data science, and cybersecurity. However, the gap extends beyond tech. Eighty percent of all vacant positions now require some form of post-secondary training, and employers are increasingly desperate for uniquely human soft skills—critical thinking, creativity, and adaptability—that are difficult to automate and essential for navigating a complex business environment. This reality puts immense pressure on both the education system and job seekers, who must now focus on continuous learning and upskilling to remain relevant.

AI's Double-Edged Sword Reshapes the Workforce

The rise of artificial intelligence is a powerful undercurrent shaping these hiring trends. The survey found that among companies planning to reduce staff, 23% cite the increased use of automation and AI as a contributing factor. This reflects a broader trend where an estimated one-third of Canadian jobs face a high risk of automation, particularly those involving routine, predictable tasks.

Yet, AI is proving to be a double-edged sword. While it displaces some roles, it creates others and fundamentally alters the skills required for many more. The tech sector, despite a recent hiring slowdown from its post-pandemic peak, still sees strong demand for specialized talent, with job postings for AI developers and architects more than doubling since early 2020. In manufacturing, AI is revolutionizing quality control and predictive maintenance, creating a need for workers who can manage and collaborate with automated systems.

This technological shift is forcing a strategic rethink of workforce composition. As Bob Funk Jr., CEO of Express Employment International, noted in the report, “As we move into 2026, companies that thrive will be those that invest in people and adaptability. Technology will continue to transform how we work, but human expertise and creativity remain irreplaceable. Closing skill gaps isn’t just a hiring challenge; it’s a strategic opportunity for long-term growth.” The challenge for businesses is no longer simply about finding people, but about finding people with the right blend of technical and human skills to thrive alongside intelligent machines.

A National Response: Bridging the Gap Through Policy and Training

Recognizing the urgency of the situation, a multi-pronged response is taking shape across Canada. Governments, educational institutions, and private companies are launching initiatives aimed at closing the skills gap and preparing the workforce for an AI-driven future.

The federal government has committed significant funding to this effort, including over $16.5 million for the “Skills for Success” program in the Toronto area alone, which focuses on foundational skills like digital literacy and adaptability. A new Canadian AI Safety Institute and funding to support workers impacted by AI are also in the works. These programs signal a strategic shift toward employer-led workforce development and skills-based hiring, moving away from a rigid focus on traditional credentials.

Simultaneously, educational programs are being rapidly retooled. The Alberta Machine Intelligence Institute (Amii), with support from Google.org, is launching a national program to equip over 125,000 students annually with foundational AI skills. This push is complemented by corporate adaptation, with more companies turning to skills-based hiring practices, enhancing their total compensation packages with professional development opportunities, and utilizing contingent or contract workers to fill immediate, specialized needs. From fast-tracking credentials for foreign doctors to address healthcare shortages to expanding work-integrated learning for students, the pieces are being put in place to build a more resilient and adaptable Canadian workforce. The success of these efforts will be critical in determining whether Canada can turn its current hiring challenge into a competitive advantage.