Canadian SMEs Struggle to Grow Amid Ongoing Skilled Labour Shortages and Rising Business Costs

Canada’s Businesses Stalled By Labour Shortages & Job Expectations

Canadian small and medium-sized enterprises (SMEs) are grappling with a persistent labour shortage, despite slight improvements since the peak of the crisis in previous years. Workforce gaps continue to disrupt business operations, hinder growth plans, and inflate cost structures across key industries.

Workforce Shortages Remain Despite Improvements

While the percentage of Canadian SMEs experiencing skilled labour shortages has declined to 40% in 2025, down from 55% in 2022, the problem persists in critical sectors. Construction, technology, and manufacturing are particularly hard-hit, with a stark mismatch between available talent and job requirements.

This disconnect threatens the ability of SMEs to meet demand, explore new opportunities, and maintain productivity levels. The skilled labour gap remains a significant barrier to growth, even as the overall employment market shows signs of stabilization.

Causes and Contributing Factors

Several factors are driving the labour shortfall among Canadian SMEs. Stricter immigration policies and slower population growth have reduced the pool of skilled workers available to businesses. Additionally, many employers struggle to attract candidates with the right skills and experience for open roles.

A persistent mismatch between formal education and practical job requirements further complicates the issue. Rising wages and increased competition for workers also create pressure for SMEs, particularly in the context of ongoing inflation and high operating costs.

Employer Responses and Adaptation

To address these challenges, SMEs are implementing a range of strategies. Many are focusing on staff retention by raising compensation—on average by 2.3%—and enhancing workplace conditions. Others are investing in automation and upskilling initiatives to reduce dependency on human labour and address specific skill gaps.

Businesses are also exploring new recruitment channels and reexamining job requirements to better match available candidates. These efforts aim to mitigate the impact of labour shortages and ensure continued operations in a competitive landscape.

Economic Pressures Compounding the Problem

The challenge of attracting and retaining skilled workers is further complicated by inflationary pressures and rising costs. Expenses such as salaries, energy, insurance, and raw materials have led 42% of SMEs to raise their prices. Meanwhile, 39% have delayed or scaled back expansion plans due to budget constraints.

Consumer-facing businesses, such as those in retail and hospitality, are especially vulnerable. Reduced household purchasing power has weakened demand, adding another layer of complexity to the labour shortage issue.

Outlook and Recommendations for SMEs

While the overall employment market in Canada has somewhat stabilized, SMEs must continue to prioritize workforce development and the adoption of technological solutions. To remain competitive, businesses are encouraged to invest in training and upskilling for existing employees.

Adopting cost-saving measures, such as renegotiating supplier contracts and improving energy efficiency, can also help alleviate financial pressures. Utilizing government programs that support sustainability and innovation projects may further assist in controlling costs and modernizing operations.

Canada’s Businesses Stalled By Labour Shortages & Job Expectations

Canadian small and medium-sized enterprises (SMEs) are grappling with a persistent labour shortage, despite slight improvements since the peak of the crisis in previous years. Workforce gaps continue to disrupt business operations, hinder growth plans, and inflate cost structures across key industries.

Workforce Shortages Remain Despite Improvements

While the percentage of Canadian SMEs experiencing skilled labour shortages has declined to 40% in 2025, down from 55% in 2022, the problem persists in critical sectors. Construction, technology, and manufacturing are particularly hard-hit, with a stark mismatch between available talent and job requirements.

This disconnect threatens the ability of SMEs to meet demand, explore new opportunities, and maintain productivity levels. The skilled labour gap remains a significant barrier to growth, even as the overall employment market shows signs of stabilization.

Causes and Contributing Factors

Several factors are driving the labour shortfall among Canadian SMEs. Stricter immigration policies and slower population growth have reduced the pool of skilled workers available to businesses. Additionally, many employers struggle to attract candidates with the right skills and experience for open roles.

A persistent mismatch between formal education and practical job requirements further complicates the issue. Rising wages and increased competition for workers also create pressure for SMEs, particularly in the context of ongoing inflation and high operating costs.

Employer Responses and Adaptation

To address these challenges, SMEs are implementing a range of strategies. Many are focusing on staff retention by raising compensation—on average by 2.3%—and enhancing workplace conditions. Others are investing in automation and upskilling initiatives to reduce dependency on human labour and address specific skill gaps.

Businesses are also exploring new recruitment channels and reexamining job requirements to better match available candidates. These efforts aim to mitigate the impact of labour shortages and ensure continued operations in a competitive landscape.

Economic Pressures Compounding the Problem

The challenge of attracting and retaining skilled workers is further complicated by inflationary pressures and rising costs. Expenses such as salaries, energy, insurance, and raw materials have led 42% of SMEs to raise their prices. Meanwhile, 39% have delayed or scaled back expansion plans due to budget constraints.

Consumer-facing businesses, such as those in retail and hospitality, are especially vulnerable. Reduced household purchasing power has weakened demand, adding another layer of complexity to the labour shortage issue.

Outlook and Recommendations for SMEs

While the overall employment market in Canada has somewhat stabilized, SMEs must continue to prioritize workforce development and the adoption of technological solutions. To remain competitive, businesses are encouraged to invest in training and upskilling for existing employees.

Adopting cost-saving measures, such as renegotiating supplier contracts and improving energy efficiency, can also help alleviate financial pressures. Utilizing government programs that support sustainability and innovation projects may further assist in controlling costs and modernizing operations.

Conclusion

Canadian SMEs continue to navigate the challenges of labour shortages, despite a slight improvement since 2022. While 40% of SMEs still face skilled labour gaps, sectors like construction, technology, and manufacturing remain disproportionately affected. To address these issues, businesses are adopting strategies such as upskilling, automation, and revised recruitment practices. However, economic pressures, including inflation and rising operational costs, complicate recovery efforts. Moving forward, SMEs must prioritize workforce development, technological innovation, and cost-saving measures to remain competitive and resilient in a challenging landscape.

FAQ

1. What is the current state of labour shortages in Canada as of 2025?

As of 2025, 40% of Canadian SMEs still experience skilled labour shortages, though this represents an improvement from 55% in 2022. Key sectors like construction, technology, and manufacturing continue to face significant challenges.

2. Which industries are most affected by labour shortages?

The construction, technology, and manufacturing sectors are the most impacted by labour shortages, due to a mismatch between available talent and job requirements.

3. What are the main causes of labour shortages beyond demographic factors?

Beyond slower population growth, causes include stricter immigration policies, a mismatch between education and job requirements, rising wages, and increased competition for skilled workers.

4. How are SMEs addressing labour shortages?

SMEs are raising compensation by an average of 2.3%, enhancing workplace conditions, investing in automation, and upskilling employees. They are also exploring new recruitment channels and adjusting job requirements to attract candidates.

5. How are economic pressures impacting SMEs amid labour shortages?

Rising costs for salaries, energy, and raw materials have led 42% of SMEs to increase prices, while 39% have delayed or reduced expansion plans due to budget constraints. Consumer-facing industries like retail and hospitality are particularly vulnerable.

6. What is the outlook for SMEs in Canada?

While the employment market has stabilized, SMEs must focus on workforce development, technological adoption, and cost-saving measures. Utilizing government programs for sustainability and innovation can also support long-term growth and competitiveness.