66% Plan to Hire, Yet Canadian Businesses Say Productivity and Wages Are Their Biggest Pressures

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Canadian businesses are sending an unusually mixed signal about the months ahead. Many are preparing to add workers, yet the biggest concerns inside their operations are not simply finding customers or surviving a downturn. They are getting more output from existing resources and managing the cost of paying people.

New Employment Hero research involving 600 Canadian business leaders found that 66% expect some form of hiring over the next six months, while 58% are optimistic about their business outlook. At the same time, productivity was identified as the leading business pressure by 41% of respondents, followed closely by wages at 39%. The combination captures an important shift: businesses still want to grow, but expansion increasingly has to prove that it can improve efficiency rather than merely increase headcount.

The 66% Hiring Figure Comes With an Important Catch

The headline hiring number looks remarkably strong. Employment Hero found that 34% of Canadian SMEs expect to expand hiring during the next six months, while another 32% intend to hire selectively. Combined, that produces the 66% figure. But those two groups describe very different strategies. One is actively increasing workforce capacity; the other may replace employees, fill specialized positions or approve only roles that clearly contribute to revenue or efficiency.

That distinction helps explain why employers can sound optimistic without embarking on a broad hiring boom. Canada’s labour market also strengthened in July, when employment increased by 75,000 and the unemployment rate slipped to 6.4%, its lowest level in two years. Still, employers appear increasingly focused on whether every additional position delivers measurable value. A small manufacturer, retailer or professional-services firm facing thin margins may hire an indispensable technician or salesperson while postponing several administrative positions that would once have been approved together.

Productivity Has Become the Pressure Businesses Cannot Ignore

Productivity topped Employment Hero’s list of business concerns, cited by 41% of respondents. That concern is backed by national economic data. Statistics Canada reported that business-sector labour productivity fell 0.5% in the first quarter of 2026 after declining in the previous quarter as well. Goods-producing industries recorded a particularly sharp 1.7% productivity decline, while service-sector productivity edged higher.

Canada’s difficulty is also much larger than one weak quarter. The OECD warned in June that the country’s long-running productivity challenge has become increasingly urgent. It noted that Canadian GDP-per-capita growth declined from more than 2.5% annually in the late 1990s to approximately zero over 2019 through 2023, with weaker labour-productivity growth playing a major role. For an individual company, the issue becomes very practical: adding employees is sustainable only when sales, technology, equipment and processes allow each hour of work to generate enough additional economic value.

Wage Pressure Remains Even as the Labour Market Has Cooled

Wages ranked second among the pressures identified by Canadian SMEs, with 39% selecting them. That does not necessarily mean Canada has returned to the acute wage competition seen during earlier labour shortages. Statistics Canada reported average hourly employee wages of $37.17 in July, 2.8% higher than a year earlier. Average weekly earnings were $1,337.77 in May, up 3.4% year over year.

The Bank of Canada’s business research paints a similarly nuanced picture. Firms’ expectations for average wage growth remain around their historical average, while weak profitability is limiting how quickly many companies expect compensation to rise. At the same time, cost-of-living adjustments are exerting upward pressure. This leaves employers squeezed between two realities. Workers naturally notice housing, food, transportation and other living costs when considering compensation, while businesses have to protect margins. For a smaller employer with fewer opportunities to spread payroll increases across a large revenue base, even moderate wage increases can materially change hiring decisions.

More Available Workers Do Not Automatically Solve Hiring Problems

Canada now has considerably more job seekers available for each opening than during the tightest post-pandemic labour shortages. Statistics Canada reported three unemployed people for every job vacancy in May 2026. Yet Employment Hero still found that hiring and talent acquisition ranked as a major pressure for 36% of Canadian SMEs. The apparent contradiction illustrates why labour shortages cannot be measured only by the national unemployment rate.

Businesses frequently need a particular person, in a particular location, with specific experience and working conditions. CFIB research has repeatedly identified these mismatches. Its 2025 analysis found that 69% of SMEs trying to recruit skilled employees viewed a shortage of qualified candidates in their sector as their primary obstacle, while 47% reported mismatches between applicants’ skills and job requirements. More recent CFIB research has also highlighted differences between where young Canadians search for jobs and how small employers recruit. A larger applicant pool therefore does not guarantee that a company can quickly fill a specialized vacancy.

Businesses Are Betting Heavily on AI to Get More From Existing Teams

One of the clearest responses to the productivity challenge is technology. Employment Hero found that 62% of the Canadian SMEs in its research were increasing investment in artificial intelligence. The motivation is understandable: if companies can automate routine administration, accelerate analysis or reduce repetitive work, they may expand output without increasing payroll at the same rate.

The broader Canadian data, however, suggest companies remain at very different stages of adoption. Statistics Canada reported that 19.2% of Canadian firms were using AI to produce goods or deliver services in 2026, up seven percentage points from the previous year. Earlier Statistics Canada research found AI-adopting firms were 16.8% more productive than non-adopters, although researchers cautioned that much of that difference reflects characteristics that productive firms already possess, including stronger innovation capabilities. The Bank of Canada has similarly warned that meaningful economy-wide gains will take time as firms invest in training, complementary technology and redesigned workflows.

Productivity and Better Pay Ultimately Have to Move Together

Productivity and wages can look like competing business pressures in the short run. A company trying to control payroll may hesitate to approve raises, while employees understandably seek better compensation. Over longer periods, however, sustained real wage growth becomes much easier when workers generate greater economic value per hour. That is why Canada’s productivity problem matters far beyond corporate balance sheets.

The Bank of Canada has explicitly connected stronger productivity with businesses becoming more competitive and having greater capacity to support higher wages, while potentially lowering costs and inflation pressure. The OECD has made a related argument about Canada’s use of skills. Despite high educational attainment, Canada has one of the OECD’s higher rates of overqualification, and the organization estimates that labour-market skill mismatch explains roughly 15% of Canada’s productivity gap with the three countries displaying the least mismatch. Hiring another qualified employee matters, but placing skilled employees in roles where their capabilities are fully used may matter just as much.

What Happens to SMEs Has Outsized Consequences for Canadian Employment

These pressures matter because smaller businesses are not a peripheral part of Canada’s labour market. Innovation, Science and Economic Development Canada reported that small businesses employed approximately 5.8 million Canadians in 2024, representing 46.6% of the country’s private-sector labour force. When medium-sized firms are included, SMEs account for well over 60% of private-sector employment.

That scale turns thousands of seemingly small hiring decisions into an important economic force. A neighbourhood contractor delaying two hires, a regional manufacturer investing in software instead of another administrative employee, or a professional-services company increasing salaries to retain specialists may seem insignificant individually. Multiplied across more than a million Canadian businesses, those choices influence national employment, investment and productivity trends. It also explains why productivity difficulties can be particularly stubborn. Smaller organizations often have less capital, fewer dedicated technology specialists and less room for failed investments than major corporations, making modernization both more necessary and more financially difficult.

Growth Is Still the Goal, but Stability Is Winning More Attention

Employment Hero’s numbers ultimately describe businesses that have not abandoned expansion but are trying to control how they pursue it. Twenty-six percent of respondents said expansion or growth would be their primary financial focus over the next six months. A larger 41% preferred a balance between growth and operational stability. That is a meaningful difference from an environment in which businesses hire aggressively simply because demand is rising.

Other indicators point in the same direction. CFIB’s long-term small-business optimism index rose to 58.3 in July, eight points above its June reading, although that research was collected before the latest escalation in U.S. tariffs. The Bank of Canada’s second-quarter Business Outlook Survey likewise found relatively strong investment intentions, including increased interest in equipment upgrades and AI integration, but weaker employment intentions than historical norms. Canadian businesses therefore appear willing to spend and hire when the economics make sense. The defining question heading into the fall is increasingly not whether companies will grow, but whether that growth produces enough additional output to justify its cost.

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