Ontario’s unemployment rate climbed significantly in May, reaching 7.9% – a level largely unseen outside of major economic downturns like the global financial crisis or the pandemic. A new report from BMO highlights that this significant rise in Ontario unemployment is currently fueled by an excess of workers entering the labor market, but signals point to potential trouble ahead from slowing job demand.
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Ontario’s Unemployment Rate Reaches Levels Not Seen Since Crises
The 7.9% unemployment rate recorded in May marks a notable jump for Ontario’s labor market. According to BMO, this figure hasn’t been reached in recent history except during the depths of the 2008-09 global financial crisis and the peak of the COVID-19 pandemic in 2020. The gap between Ontario’s rate and the national average is also widening, reaching 0.9 percentage points, a disparity rarely seen outside of those same crisis periods.
Graph illustrating Ontario and Canada unemployment rates from BMO, highlighting Ontario's sharp rise to 7.9% in May 2025 and wider gap with the national average.
Robert Kavcic, Senior Economist at BMO, attributes much of this recent surge to an oversupply of labor compared to the number of available jobs in the province.
Excess Labor Supply Driving Ontario’s Jobless Rate
Contrary to typical recessionary trends, Ontario’s rising unemployment hasn’t primarily been caused by widespread job losses. Instead, the core issue has been the rapid pace at which the province’s labor force is growing. Canada as a whole has seen its labor force expand significantly faster than job creation, a trend particularly pronounced in Ontario due to its role as a major destination for new residents.
As explained previously, Canada’s rising unemployment is due to its aggressive population growth, not job losses. BMO’s Kavcic notes that “The cause of Ontario’s rising unemployment rate since late-2022 has been almost entirely on the supply side.” He points out that labor force growth at one point exceeded a rapid 4% year-over-year pace, a rate that would be challenging for even a strong job market to absorb. The influx of non-permanent residents, including international students and temporary foreign workers, also contributes to this growing labor pool.
The Next Concern: Slowing Job Creation and Weakening Demand
While an abundance of new workers has been the main story so far, the outlook is beginning to shift. BMO points out that job growth, which had at least been steady previously, slowed significantly in May to just 0.7% annually. This rate is less than a third of the pace of labor force expansion, signalling a potential change in the underlying dynamics of the job market.
If job creation continues to slow, or even stalls, the driver of rising unemployment could shift from an issue of supply (too many workers) to one of demand (not enough jobs being created by the economy). Kavcic warns that external factors, such as potential trade tensions impacting Ontario’s economy, could exacerbate this shift, leading to joblessness driven by weakened employment growth rather than just labor force expansion.
What This Means Going Forward
Ontario’s sharp rise in unemployment to 7.9% signals significant labor market challenges, currently rooted in rapid population growth. However, the recent slowdown in job creation points to a potential shift towards weaker economic demand as a primary driver for future unemployment increases. Businesses and job seekers in Ontario should monitor these trends closely, as the labor market dynamics are evolving rapidly. Stay informed on the broader economic picture by exploring our related articles.
