Canada’s small and-medium sized businesses (SMEs) continue to face challenges in the labour market. While vacancy rates have eased, many are still struggling not just to find workers, but to find candidates with the right skills, expectations, and qualifications. Even when talent exists elsewhere in Canada, regulatory hurdles ─ like province-specific licensing and certification rules ─ limit worker mobility and make it harder for businesses to access the talent they need. Left unaddressed, these barriers don’t just affect individual firms—they drag on productivity, slow regional development, and undermine Canada’s economic competitiveness. This analysis explores the roots of these challenges and highlights policy actions that can help unlock talent, strengthen the workforce, and support long-term growth.
Workforce Challenges Persist Amid Shifting Labour Market Conditions
Canada's labour market is showing signs of easing pressure, with job vacancy rates falling from 3.7% in January 2024 to 2.9% in February 2025.[1] However, this improvement masks the structural challenges small businesses are facing. Over half (53%) of SMEs still cite labour shortages as a major barrier to growth,[2] and critically, 44% report that a shortage of skilled labour is directly limiting their ability to increase sales or production (Figure 1). This trend has shown no sign of easing since July 2020, remaining above the historical average and pointing to a persistent issue.
Figure 1
Skilled labour shortages hinder businesses sales or production, staying above its historical average since July 2020
Source: CFIB, Business Barometer – January 2019- April 2025, more details available at cfib.ca/barometer.
Question: “What factors are limiting your ability to increase sales or production?” The share above represents the respondents who selected [Shortage of skilled labour].
At the core of this challenge is a persistent mismatch between business needs and the available workforce. A full 69% of SMEs say the primary obstacle to recruiting skilled employees is a shortage of qualified candidates within their sectors
(Figure 2). But the issue runs deeper: nearly 57% of small businesses report a disconnect between what candidates expect in terms of pay or benefits and what the business is offering.
At the same time, half of small businesses say they simply cannot provide compensation packages that match those of large companies, likely due to limited financial flexibility. This dual constraint ─ expectation versus capacity ─ leaves many businesses stuck in a hiring impasse, often forcing them to compromise on qualifications or leave roles unfilled.
Figure 2
A shortage of applicants and mismatched job expectations are among key challenges in recruiting skilled workers
Source: CFIB, Your Voice Survey - September 2024, n=1,048.
Question: What specific challenges have you identified regarding the recruitment of skilled employees? (Select all that apply).
Compounding these difficulties, 47% of SMEs identify a mismatch between the skills applicants bring and the actual requirements of the role. Meanwhile, 54% say they simply struggle to attract candidates at all — whether due to location, sector perception, or lack of visibility in a competitive hiring environment. This reinforces a growing disconnect in Canada’s labour market: even when candidates are available and willing to work, many lack the capabilities needed to meet business demands, or are unaware of or uninterested in the opportunities available in smaller firms.
The issue of labour shortages has evolved — while many sectors still face a lack of applicants, the greater challenge is now finding qualified candidates whose expectations and skill set align with the demands of the role and the constraints faced by small businesses. These combined barriers — shortages, skills mismatches, compensation limits, and attraction difficulties — don’t just disrupt hiring; they directly limit business growth and constrain productivity.
Sectoral and Geographic Challenges
Some sectors face a steeper uphill battle in sourcing the right talent. Sectors such as construction (77%), personal and miscellaneous services (61%), and social services (61%) are particularly vulnerable to recruitment challenges, as they rely heavily on specialized skills and expertise to maintain their operations (Figure 3).
Geographic location compounds these challenges. SMEs in rural areas or smaller economic hubs often experience more significant difficulties in attracting skilled workers (54%) than their counterparts in larger cities (40%). Limited access to a skilled labour pool, fewer career advancement opportunities, and less visibility to job seekers all contribute to a widening talent gap between urban and rural areas, constraining growth in the very regions that need it most.
Figure 3
Over 60% of SMEs in skill-dependent sectors face recruitment challenges
Source: CFIB, Your Voice - September 2024 survey, September 5-23, 2024, n= 572.
Question: Over the last six months, which of the following labour related issues have been challenging for your business? The share above represents respondents who selected [Recruiting skilled employees].
Leveraging Labour Mobility to Address Labour Gaps
Despite the availability of skilled workers in other Canadian jurisdictions, inconsistent provincial and territorial regulations continue to limit labour mobility. Holding a licence in one province or territory does not automatically grant the right to work in another. For many occupations, workers must obtain certification and licensing specific to the province or territory in which they intend to work — often resulting in added costs, wait times, testing, and paperwork.
For example, a Red Seal-certified hairstylist from Newfoundland and Labrador who wants to work in New Brunswick must fill out an out-of-province application, provide supporting documents, and pay a fee of $340. The whole process could take up to 30 days (not accounting for the time it takes for extra training, exams, etc.).[3]
These inconsistencies not only limit employment opportunities by discouraging worker mobility but also prevent businesses from hiring qualified candidates from another Canadian jurisdiction to fill essential positions quickly and enhance productivity. As such, it is unsurprising that nine in ten small businesses agree that a professional license or certification obtained in one jurisdiction should be automatically recognized in all others.[4]
Enabling certified professionals to work more freely across jurisdictions would allow businesses to recruit from a truly national talent pool, ensuring that skills are deployed where they are most needed.
Tackling Workforce Quality
While mobility can help address regional mismatches, labour quality also remains a fundamental concern. Only 17% of businesses rate their workforce as 'excellent,' while 40% rate it 'fair' or 'poor.' Employers report frequent issues with productivity (69%), lack of motivation (66%), and weak problem-solving skills (64%). These soft-skill deficits undermine operational efficiency, even when roles are filled.
In many cases, these challenges may reflect broader weaknesses in the talent pipeline, including insufficient hands-on training, limited workplace preparation, or a misalignment between education outcomes and employer needs. The result is a workforce that may meet the job title’s formal requirements, but not the practical demands of the task.
Meanwhile, productivity data paints a concerning picture. Since early 2021, Canada’s labour productivity has remained flat, while unit labour costs have steadily increased (Figure 4). SMEs are bearing the brunt of this imbalance—paying more without realizing corresponding gains in output or efficiency.
Targeted efforts to improve workforce quality — through training incentives, better onboarding, and stronger partnerships with educators — offer a clear path to strengthening business performance, boosting productivity, and enhancing Canada’s economic competitiveness.
Figure 4
Rising labour costs outpace stagnant productivity
Source: Author’s calculation, Statistics Canada. Table 36-10-0206-01: Indexes of business sector labour productivity, unit labour cost and related measures, seasonally adjusted.
Conclusion and Recommendations
Canadian SMEs continue to face significant barriers in hiring a skilled and productive workforce. Labour mobility reforms offer an actionable pathway to improve workforce allocation and reduce hiring issues. However, to maximize impact, these reforms must be coupled with broader efforts to elevate workforce quality. Only then can SMEs thrive and drive Canada’s broader economic growth. To this end, CFIB recommends the following action to help enhance labour mobility and quality:
Labour mobility:
- Pursue mutual recognition agreements to streamline certification processes and improve labour mobility across Canada.
- Allow licensed professionals to work within the scope of their existing training and experience while undergoing registration processes in a new province or territory.
- Work with professional colleges and associations to lower or waive interprovincial registration fees.
- Streamline the registration process by legislating a clear timeline for professional certification approvals. Should approval timelines not be respected, implement compensation for businesses such as waiving registration fees.
Labour quality:
- Introduce tax credits and grants for SMEs that invest in employee training and upskilling.
- Provide wage subsidies or EI premium holidays for SMEs hiring and training new or inexperienced workers.
- Encourage partnerships between small businesses and educational institutions to create apprenticeship and internship programs that can help bridge the skills gap.
FOOTNOTES
[1] Statistics Canada. Table 14-10-0406-01 Job vacancies, payroll employees, and job vacancy rate by industry sector, monthly, adjusted for seasonality.
[2] CFIB, Business Barometer April 2025, “What factors are limiting your ability to increase sales or production?” This share represents respondents who selected [Shortage of skilled labour] and/or [Shortage of unskilled, semi-skilled labour] from a multiple-choice list.
[3] CFIB, Stuck at the border: How paperwork hinders labour mobility for small businesses. 2025.
[4] CFIB, Your Voice – September 2022 survey, September 8-26, 2022, n = 3,679.
