How jobs are disappearing

Key Concepts

• Internal Trade Barriers: Obstacles to the free movement of goods and services between Canadian provinces.
• Artificial Intelligence (AI): Technology that enables machines to perform tasks that typically require human intelligence.
• Job Displacement: The loss of jobs due to technological advancements or economic changes.
• Layoffs: The termination of employment by an employer, often due to economic reasons.
• Innovation Economy: An economy driven by new ideas, technologies, and entrepreneurial ventures.
• Angel Investors: Individuals who provide capital for a business start-up, usually in exchange for convertible debt or ownership equity.
• Minimum Wage: The lowest hourly wage an employer can legally pay to their employees.
• Living Wage: The minimum income necessary for a worker to meet their basic needs in a particular place.

Business Briefs

The week's business news included several key developments:

• Major Projects Office: New targets for the Major Projects Office were announced, focusing on mines, LNG, and northern hydro projects. The office received $213 million in funding over five years and is proposed to become a standalone entity.
• Cleo Valuation: Canadian AI firm Cleo reached a $5 billion US valuation following its latest funding round. Cleo also acquired VLAX for $1 billion US.
• Visa and Mastercard Settlement: Visa and Mastercard settled a US lawsuit with merchants over card usage fees. The agreement includes slightly lower fees and allows merchants to reject higher-cost cards.
• US Airport Disruptions: Thousands of US flights were cancelled due to FAA capacity limits at 40 airports, attributed to unpaid air traffic controllers during a government shutdown.
• Global Energy Outlook: The International Energy Agency (IEA) projects continued growth in global oil consumption until 2050, but anticipates an inevitable transition due to the rapid rise of renewable energy, which is expected to grow faster than any other energy source in the next decade.
• Loblaws Performance: Loblaws reported a 4.6% sales increase, driven by higher traffic and increased spending per visit. Discount brands outperformed full-price stores as consumers sought bargains.

Internal Trade Barriers and Alcohol Regulation

Dan Kelly, President and CEO of the Canadian Federation of Independent Business (CFIB), discussed the persistent issue of internal trade barriers in Canada, particularly concerning alcohol.

• Lack of Action: Despite significant political attention and commitments, progress on dismantling internal trade barriers has been slow. Kelly expressed concern that governments are moving beyond platitudes and commitments into action.
• Alcohol as a Key Example: Alcohol regulation is highlighted as a significant area where barriers remain high. An agreement made in 2017 to standardize alcohol rules across Canada is only now beginning to show some results with direct-to-consumer plans.
• Provincial Hurdles: Kelly emphasized that most trade barriers reside at the provincial level. The federal government has made some progress by scrapping its own restrictive rules, but provincial cooperation is crucial.
• Complex Regulatory Landscape: The challenges in alcohol regulation stem from a "patchwork quilt of agencies" and approximately ten distinct problems to solve. These include:
  • Provincial Testing Requirements: Some provinces require all alcohol products to undergo their own testing.
  • Differing Labeling Requirements: Producers must apply different labels depending on the destination province.
  • Provincial Liquor Authority Distribution: In most cases, small producers must sell their products to provincial liquor authorities, which then distribute them to consumers or retailers.
• Revenue Generation: A significant hurdle is that provinces derive substantial revenue from acting as intermediaries in alcohol sales, making them reluctant to relinquish this stream.
• Agreed Model and Process: The agreed-upon model allows private producers to sell directly to consumers across Canada. However, producers face a "labyrinth of process steps" to achieve this, while still ensuring the province receives its share.
• Comparison to Sales Tax: The process is significantly more complex than for sales taxes, where interprovincial sales are generally handled by applying the local sales tax rate.

The Impact of AI on Jobs

The discussion shifted to the impact of technology, particularly Artificial Intelligence (AI), on the job market.

• Canadian Job Market Resilience: In October, Canada added 67,000 jobs, and the unemployment rate dropped to 6.9%. Both full-time and part-time employment increased, with wholesale and retail trade being the largest contributors (41,000 jobs). Construction saw a loss of 15,000 jobs.
• Sectoral Shifts: While construction and manufacturing jobs have declined year-to-date, the service sector gained 142,000 jobs.
• AI's Current Impact in Canada: Despite fears, AI has not yet led to widespread job displacement in Canada. While 60% of jobs are considered highly exposed to AI-related changes, 89% of businesses using AI reported no change in their employment plans.
• US Layoff Trends: In contrast, the US experienced significant job cuts in October, with employers announcing 153,000 layoffs. This represents a 175% increase from October 2024 and a 183% rise from the previous month.
  • Reasons for US Layoffs: Cost-cutting was the primary reason cited (top factor), with AI being the second most cited factor, accounting for 48,414 job cuts year-to-date.
• John Challenger's Perspective (CEO, Challenger Gray and Christmas):
  • Surprising Layoff Surge: Challenger noted the sudden increase in large-scale layoffs in October, which hadn't been seen since 2020.
  • Economic Slowdown as Primary Driver: He identified the slowing economy and corporate restructuring as the main drivers of job cuts, with companies in underperforming sectors making necessary adjustments.
  • AI's Unprecedented Potential Impact: Challenger believes AI's potential impact on workers is unlike previous technological shifts. While past tech changes (robotics in manufacturing, dot-com bubble) led to job losses and restructuring, AI is fundamentally changing how work is organized for both blue-collar and white-collar jobs.
  • Long-Term Job Creation vs. Short-Term Disruption: He anticipates that AI will spur long-term economic growth and create new types of companies and jobs, but acknowledges that the transition will be difficult for those who lose their jobs, as new roles may not emerge immediately.
  • Fear of Outright Job Disappearance: Challenger considers it more likely that AI will lead to some jobs disappearing outright, potentially cutting some workers out of the market.
  • US Job Market Outlook: He sees the US job market facing a slowdown and likely heading towards recession, but suggests that AI investment could be a mitigating factor, preventing a deeper downturn or helping to avoid recession altogether.

Public Sector Job Cuts and AI's Role in Canada

Jim Stanford, Director of the Center for Future Work, provided insights on public sector job cuts and the evolving role of AI in Canada.

• Federal Public Service Downsizing: The Canadian government plans to reduce the federal public service by approximately 40,000 positions over the next three to four years. While some cuts have occurred, others will be managed through retirement incentives and voluntary measures.
• Economic Drag: Stanford expressed concern that these public sector job losses will create a drag on the overall labor market, which is not ideal for Canada's economy.
• AI and Cost Savings: He acknowledged that companies are increasingly seeing cost savings through AI, enabling fewer people to perform the same amount of work.
• Net Job Creation vs. Labor Demand Shifts: While AI has, on a net basis, created more jobs than it has destroyed so far (largely due to investment booms in AI-related sectors), Stanford is observing early signs of changes in labor demand.
  • Slow Hiring and Entry-Level Positions: Companies may be hiring fewer entry-level workers, opting to use technology instead.
  • Disruptions and Shifts: He does not predict the "end of work" but anticipates disruptions and shifts in the labor market.
• Growing Inequality and Wealth Concentration: Stanford highlighted concerns about growing inequality and the concentration of wealth in the AI sector. He pointed to the rise of billionaires and the need for stronger redistributive policies, including higher taxes on the wealthy and better support for workers through wages, working conditions, and income support benefits.
• Fiscal Capacity and Debt: Regarding government debt, Stanford believes it is small by international standards and that using debt to finance a stronger economy is a sound decision, especially in the current global climate.

Federal Budget and Support for Entrepreneurs

Claudia Rojos, CEO of the National Angel Capital Organization, discussed the federal budget's impact on supporting entrepreneurs and innovation.

• Budget 2025 as a Critical Step: Rojos views Budget 2025 as a significant advancement for Canada's innovation economy, signaling a high priority for the government in supporting entrepreneurs with capital and networks.
• Importance of Early-Stage Capital: Access to capital is crucial at all stages of the innovation pipeline. Companies that secure deep pools of capital early are more competitive in later stages and when approaching IPOs.
• $750 Million Investment: The budget's $750 million investment aims to establish national infrastructure for capital and networks, creating more access points for early-stage entrepreneurs.
• Role of Angel Investors: Beyond capital, angel investors provide valuable resources, intellectual knowledge, domain expertise, and access to clients, contributing to the growth of portfolio companies.
• Mobilizing Private Capital: Rojos believes that private pools of capital will mobilize on a larger scale as the early-stage pipeline is strengthened with high-potential companies in areas like AI, quantum, clean technologies, and digital health.
• Canadian Entrepreneurial Success Stories: Despite challenges in early-stage infrastructure, Canadian entrepreneurs have built successful companies like Cohere ($5 billion valuation), Wealth Simple ($10 billion valuation, funded with a $250,000 angel check), and Shopify (funded with a $250,000 angel check, now a $250 billion company).
• Need for a National Investment Tax Credit: Rojos identified a national investment tax credit as a crucial missing element. This credit would help mobilize private capital at scale by correcting for the high risk associated with early-stage investments. She cited examples from other jurisdictions where such credits have been effective.

The Gap Between Minimum Wage and Living Wage

The program concluded with a discussion on the widening gap between minimum wage and the actual cost of living in Canada.

• Minimum Wage Increases: Minimum wages across Canada have increased this year, ranging from $19.75/hour in Nunavut to $15/hour in Alberta. These are intended to protect workers from exploitation and reflect the cost of living.
• Growing Gap in Ontario: The Ontario Living Wage Network reports that the gap between minimum wage and the actual cost of living is widening. In Ontario, the living wage ranges from $21/hour to $27.20/hour in Toronto.
• Distorted Cost of Living: The high cost of housing is identified as a major factor distorting the cost of living. While rents have softened slightly, they remain high. Food and transportation costs are also elevated.
• Minimum Wage as a Non-Livable Wage: The core issue is the existence of a minimum wage that does not guarantee a livable income.
• Employer Pushback and Unintended Consequences: Some employers argue that certain workers (part-time, younger) can afford to earn less for flexibility or experience. However, the minimum wage may inadvertently lead employers to cap wages at that level, preventing market forces from driving higher pay in high-cost areas.
• Flawed System: The fact that workers in expensive locations do not naturally demand and receive higher pay suggests a flaw in the system.
• Conclusion: While workers deserve protection from exploitation, further work is needed to ensure wages are livable.

Takeaway

The program's takeaway emphasizes that while minimum wage laws aim to protect workers, they are failing to provide a livable income in many parts of Canada. The widening gap between minimum wage and the actual cost of living, driven by factors like housing, food, and transportation, highlights a systemic issue that requires further attention and policy solutions to ensure workers can afford to live in the places where they work.