Redefining the landscape: Why is Canada facing a labour shortage?

Even though the labour shortage in Canada reached a near-eight-year high leading into 2025, no comprehensive solution exists. For reference, experts expect Ontario’s manufacturing sector will lose 22,500 workers annually to retirement, but youth are not poised to bridge the gap. This adds to tariff-related demand issues. As the skilled labour shortage in Canada’s manufacturing industry worsens, the need for a plan becomes increasingly crucial.

The labour shortage in Canada: A growing crisis

Although Canadian manufacturing has experienced skill scarcity for years, its recent growth is unparalleled. According to a 2022 report by Canadian Manufacturers & Exporters (CME), the percentage of manufacturers reporting understaffing increased to over 80 per cent in 2022, up from 39 per cent in 2016. The labour shortage more than doubled in less than a decade. 

And while the sector’s workforce grew by 1.8 per cent in January 2025, its overall employment rate changed minimally year over year. Moreover, despite being the country’s fourth-largest sector, employment has trended downward historically.

This issue isn’t limited to select positions — most manufacturers have reported urgent shortages in skilled and general assembly roles. The demand for both is similar. While administrative and supervisory jobs are less affected, they remain understaffed.

Experts expect Canada’s labour shortage to continue worsening. The recent on-again-off-again tariffs from the United States further complicated things. According to a 2025 Canadian Manufacturers & Exporters report, nine in 10 manufacturers expect significant or severe impacts if duties increase. The supply chain strain could put tens of thousands of jobs at risk.

Why is manufacturing declining in Canada?

While many industry stakeholders have expressed concern over the rising skilled labour shortage Canada is experiencing, no comprehensive solution has yet been identified. Those who take action find their efforts insufficient because they aren’t approaching the issue correctly. 

While supplementing the workforce with immigrants can be a viable strategy, nearby countries likely won’t be of any assistance. For example, a study by Deloitte and The Manufacturing Institute predicts that by 2030, 2.1 million manufacturing jobs in the United States could go unfilled due to a skills gap. Hiring locally may be equally challenging. 

Manufacturers have increased salaries to be more competitive. In early 2025, they paid workers $31.30 hourly, which is considerably higher than the $17.20 federal minimum wage. However, it is still lower than the country’s $36.80 average hourly wage. Qualified workers know they can get more elsewhere, so they aren’t incentivized.

Although manufacturers need to fill empty positions, most aren’t automating. While many believe it isn’t a viable strategy, some simply can’t afford to. Ontario’s 2024 Advanced Manufacturing Council report found that 40 per cent of manufacturers agree that recruiting skilled workers is a significant or very significant barrier to adopting automation technologies.

Why is Canada facing a labour shortage?

The labour shortage in Canada is a multifaceted issue stemming from geopolitical trends, shifting expectations, public perception and an aging workforce. There are a few key factors driving skill scarcity in the manufacturing industry. 

Poor hiring is one of the biggest reasons Canadian manufacturers face a labour shortage. As workers continue to retire, young people aren’t replacing them — many choose alternative career paths because they don’t view manufacturing as lucrative or worthwhile. 

Many Canadians view manufacturing jobs as risky because they consider the industry low-paying, unsafe and unfulfilling. Historically, their opinion of hands-on, blue-collar work hasn’t been favourable. However, the attitude of current workers also affects public perception.

As workloads worsen and workers increasingly become discontent in their roles, the belief that manufacturing is thankless and unpleasant further cements itself in the public’s mind. This impacts hiring since the demand for convenient, satisfying work is trending. 

The impact of the skill and labour shortage in Canada

Manufacturers have experienced substantial financial, talent, opportunity and reputation-related losses because of the skilled labour shortage Canada faces. Understaffing has forced many to delay or cancel deliveries, increasing operational costs and reducing sales. The consequential client dissatisfaction left a lasting impact on their customer retention rates.

These lost business opportunities and declining customer satisfaction rates have been financially damaging. According to the CME report, manufacturers individually reported losses of $2.8 million in 2022. The Canadian manufacturing industry lost $7.2 billion because of late delivery penalties and declined contracts. 

The same study revealed labour and skill shortages are forcing manufacturers to put off investment and expansion plans. In 2022, those cancellations caused $2.1 million in losses per company — costing the industry an additional $5.4 billion. 

Even though manufacturers have been forced to postpone or cancel most contracts and internal projects, the labour shortage in Canada ensured workers remained overworked. Consequently, many are growing dissatisfied with their work. As burnout increases and motivation deteriorates, employee retention rates decline.

The inability to invest in new projects, take on new contracts and retain talented workers will permanently affect many manufacturers. When they are unable to innovate, their forward momentum will stagnate. Their competitiveness and future earning potential will be significantly impacted.

Strategies to overcome the skilled labour shortage in Canada

While no out-of-the-box solution exists, Canadian manufacturers can leverage numerous strategies to permanently strengthen their workforce.

1. Facility Transformation 

Leveraging state-of-the-art equipment and prioritizing cleanliness can combat the general public’s perception that manufacturing positions are unhygienic or high-risk, potentially increasing interest. This move can also improve employee retention. 

2. Collaboration and Outreach

The aging workforce and lack of fresh talent are significant drivers of the skilled labour shortage Canada faces. Companies can collaborate with higher education institutions or develop outreach programs aimed at youth to dissuade young people from alternative career paths. 

3. Automation Investment

Manufacturers that digitize their machinery, software and equipment can ease the burden on their current workforce and fortify themselves against further shortages. This strategy can also increase resilience to U.S. tariffs. Staggered adoption and strategic implementation may make investing more affordable.

4. Upskilling and Reskilling 

Manufacturers should collect performance data to objectively and swiftly address skill gaps. Considering that 68 per cent of workers are willing to learn new professional skills, this strategy can be impactful. Upskilling and reskilling eliminate the need to source talented individuals since they all but guarantee candidates can learn critical, specialized skills on the job.

Strategies for sourcing and hiring skilled workers

Administrators can combat the labour shortage in Canada by restructuring their hiring processes. 

1. Harness Digital Engagement

Social media and online spaces are ideal platforms for broadening the talent pool and targeting youth. Young people can revitalize the manufacturing industry, so hiring professionals would be wise to develop targeted outreach campaigns. 

Digital onboarding is another way to ensure candidates meet skill requirements. Promark Electronics, a Canadian electronics manufacturer, leveraged online tools to reduce instruction length from six weeks to two while maintaining performance goals.

2. Update Wages and Benefits

PwC’s 2024 Hopes and Fears Survey analyzed Canadian worker sentiment in 2024. Around 25 per cent of workers stated they were “very likely” or “extremely likely” to change jobs if it meant earning more. Just over 40 per cent said they had little to nothing left over each month after paying their bills.

Administrators should restructure pay and benefits to address the expectation misalignment between candidates and employers. Retirement packages, maternity leave, mental health days and disability programs are attractive incentives — and can even increase employee retention.

3. Leverage Awareness Campaigns

Underrepresented groups often have no idea their unique expertise is desirable since the industry doesn’t favour them. For instance, women filled only 28 per cent of manufacturing roles in 2019. Hiring professionals should tap into this untouched resource by leveraging awareness campaigns and publicizing their diversity and inclusion efforts. 

BASF Canada Inc., a chemical manufacturer, made substantial progress in this regard. It developed a three-year strategy to improve its diversity and inclusion efforts, even going as far as to establish a governance and oversight team.  

Overcoming Canada’s skilled labour shortage: A path forward

Although the skilled labour shortages Canada faces in the manufacturing industry seem insurmountable, professionals can overcome them if they leverage proven strategies and carefully consider a context-specific approach to their situation.

Editor’s Note: This article was originally published on April 9, 2004. It has been updated to include more recent studies and statistics.