Population growth once boosted Toronto's economy – now it's fuelling job market strain
Toronto’s unemployment rate climbed to 8.9% as of September 2025, marking nearly a 3.5-percentage-point increase from its post-pandemic low and leaving Canada’s largest city with the fourth-highest jobless rate among the country’s 41 major urban areas, according to a report released Wednesday by TD Economics.
The Toronto Census Metropolitan Area, which contributes about 20% of Canada’s GDP and employs roughly one-fifth of the national workforce, has seen its unemployment rate far outpace increases recorded elsewhere in Ontario. The gap between Toronto’s rate and the provincial average stood at 2.0 percentage points in September, exceeding historical norms.
Population influx drives initial rise
Robust population growth emerged as the primary driver behind Toronto’s rising unemployment through much of 2024. Since the end of 2023, Toronto’s labour force expanded by 4.5%, outpacing the rest of Ontario by 1.4 percentage points. However, employment grew by only 2.1% during the same period, failing to absorb the influx of new workers.
“It’s unusual to see an almost 3.5 ppt rise in Toronto’s unemployment rate come largely on the back of labour force growth,” the report stated, noting that during the Global Financial Crisis, a similar unemployment increase was driven by declining employment rather than labour force expansion.
Federal reductions to migrant targets in late 2024 have since slowed Toronto’s population growth faster than in the rest of the province, particularly through reduced student inflows.
Trade war, construction weakness weigh on hiring
More recently, weakening employment growth has compounded Toronto’s labour market challenges. Between December 2024 and September 2025, employment increased just 0.2% in Toronto, slightly softer than in the rest of Ontario.
Industries most exposed to US trade face steep declines. Transportation and warehousing employment plunged 6%, while manufacturing dropped 2%. TD Economics noted that the Canada–US trade war has dampened business confidence and created knock-on effects across wholesale trade, professional services, and other sectors.
Toronto’s construction sector remains in prolonged decline from its 2023 peak as the Greater Toronto Area condo market grapples with weak demand, limited investor appetite, and elevated costs. The homebuilding downturn follows a pandemic-era boom that added approximately 21,000 direct and indirect jobs.
Highly indebted Toronto homeowners facing mortgage renewals at sharply higher rates have also curtailed spending, contributing to weaker retail and discretionary services hiring compared with other parts of Ontario.
Youth unemployment reaches crisis levels
Young workers face particularly acute challenges, with roughly one in five youths in Toronto’s labour force unemployed in September, approaching post-Global Financial Crisis highs outside the pandemic period.
The report found that older workers facing economic pressures are increasingly taking positions in industries that traditionally hire younger employees, intensifying competition for entry-level roles. However, researchers found little evidence that artificial intelligence adoption has significantly contributed to youth unemployment.
Outlook remains uncertain
TD Economics projects near-term increases in unemployment rates for both Toronto and Ontario before gradual improvement in 2026 as population growth remains soft and the economy slowly strengthens.
The gap between Toronto and Ontario’s unemployment rates could narrow as labour force growth cools more sharply in the city, though Toronto’s rate may remain above average due to ongoing homebuilding weakness and trade uncertainty, according to analysts.
