Last Updated On 11 June 2025, 2:36 PM EDT (Toronto Time)
Canada’s small and medium-sized enterprises (SMEs), the backbone of the nation’s economy, are grappling with a persistent and multifaceted hiring crisis.
According to a recent analysis by the Canadian Federation of Independent Business (CFIB), small businesses face significant challenges in recruiting skilled workers due to a shortage of applicants, mismatched job expectations, and restrictive interprovincial regulations.
The Canadian Federation of Independent Business (CFIB) is Canada’s largest association of small and medium-sized businesses, with 100,000 members across every industry and region.
These hurdles are not only stifling business growth but also dragging down Canada’s overall economic competitiveness.
With 44% of SMEs reporting that a shortage of skilled labour limits their ability to increase sales or production, the stakes are high.
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The Canadian labour market is showing signs of improvement, with job vacancy rates dropping from 3.7% in January 2024 to 2.9% in February 2025, according to Statistics Canada.
However, this apparent progress masks deeper structural issues that continue to plague small businesses.
Over half (53%) of SMEs cite labour shortages as a major barrier to growth, with 44% specifically noting that a lack of skilled labour directly hampers their ability to scale operations.
This trend, which has persisted since July 2020, shows no signs of abating and remains above the historical average.
Marvin Cruz, CFIB’s director of research, highlights the severity of the issue: “Many small firms are struggling not just to find workers, but to find candidates with the right skills, expectations, and qualifications.”
The data backs this up, with 69% of SMEs identifying a shortage of qualified candidates within their sectors as the primary obstacle to recruitment.
Additionally, 54% struggle to attract candidates at all, while 47% face a mismatch between applicants’ skills and the specific requirements of open roles.
One of the most significant barriers to hiring is the growing disconnect between candidate expectations and what small businesses can offer.
A staggering 57% of SMEs report that applicants expect higher pay or better benefits than the business can provide.
Meanwhile, half of small businesses admit they cannot compete with the compensation packages offered by larger corporations, which often have greater financial flexibility.
This mismatch creates a hiring impasse, forcing many SMEs to either compromise on qualifications or leave critical roles unfilled.
“There’s a growing disconnect in Canada’s labour market between small business needs and the available workforce,” says Alchad Alegbeh, CFIB’s research analyst.
“Even when roles are filled, businesses often deal with employees’ poor productivity, lack of motivation, and weak problem-solving skills, which further strain operations.”
The hiring crisis is not uniform across industries or regions.
Sectors like construction (77%), personal and miscellaneous services (61%), and social services (61%) face particularly acute recruitment challenges due to their reliance on specialized skills.
These industries often require workers with specific training or certifications, making it harder to fill roles when qualified candidates are scarce.
Geographic disparities further complicate the issue.
SMEs in rural areas or smaller economic hubs face greater difficulties in attracting skilled workers (54%) compared to those in urban centers (40%).
Limited access to a skilled labour pool, fewer career advancement opportunities, and lower visibility to job seekers contribute to a widening talent gap between urban and rural regions.
This gap not only constrains business growth but also hampers regional development in areas that need it most.
Even when skilled workers are available in other parts of Canada, provincial licensing and certification requirements create significant barriers to labour mobility.
For example, a Red Seal-certified hairstylist from Newfoundland and Labrador looking to work in New Brunswick must navigate a complex process involving out-of-province applications, supporting documents, and a $340 fee, with wait times of up to 30 days or more.
These regulatory hurdles discourage workers from relocating and prevent businesses from accessing a national talent pool.
The CFIB reports that nine in ten small businesses support the automatic recognition of professional licenses and certifications across all Canadian jurisdictions.
“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,” the CFIB analysis notes.
Yet, inconsistent provincial regulations continue to limit mobility, exacerbating labour shortages in critical sectors and regions.
Beyond recruitment challenges, workforce quality remains a significant concern for SMEs.
Only 17% of small businesses rate their workforce as “excellent,” while 40% describe it as “fair” or “poor.”
Employers frequently cite 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.
The broader talent pipeline also shows signs of strain.
Many candidates lack the hands-on training or workplace preparation needed to meet the practical demands of their roles.
This misalignment between education outcomes and employer needs leaves businesses struggling to maintain productivity.
Since early 2021, Canada’s labour productivity has remained stagnant, while unit labour costs have steadily risen, placing additional pressure on SMEs already grappling with rising wages and limited output.
The combined effect of labour shortages, skills mismatches, and regulatory barriers is a significant drag on Canada’s economy.
SMEs, which account for a substantial portion of employment and GDP, are unable to scale operations or meet demand due to workforce constraints.
This not only limits individual business growth but also slows regional development and undermines Canada’s global economic competitiveness.
“Since 2021, wage costs have gone up, but productivity has stagnated,” Cruz notes.
“By improving our workforce quality and removing labour mobility barriers, we could boost our productivity and strengthen Canada’s economic competitiveness.”
Without action, the persistent labour market challenges will continue to erode the potential of small businesses and the broader economy.
The CFIB proposes a two-pronged approach to address these challenges: improving labour mobility and enhancing workforce quality.
These actionable recommendations aim to unlock talent, streamline hiring, and boost productivity for SMEs across Canada.
Labour Mobility Reforms
Mutual Recognition Agreements: Governments should pursue agreements to streamline certification processes and ensure that professional licenses obtained in one province or territory are recognized nationwide.
This would create a seamless national talent pool, allowing businesses to hire skilled workers from any jurisdiction without bureaucratic delays.
Interim Work Permissions: Allow licensed professionals to work within the scope of their existing training and experience while undergoing registration processes in a new province or territory.
This would reduce wait times and enable businesses to fill critical roles more quickly.
Lower or Waive Fees: Work with professional colleges and associations to reduce or eliminate interprovincial registration fees, making it more affordable for workers to relocate and for businesses to hire them.
Streamlined Certification Processes: Legislate clear timelines for professional certification approvals.
If deadlines are not met, governments should compensate businesses by waiving registration fees, incentivizing faster processing and reducing financial burdens on SMEs.
Workforce Quality Initiatives
Tax Credits and Grants for Training: Introduce financial incentives for SMEs that invest in employee training and upskilling.
These programs would help businesses bridge the skills gap by equipping workers with the practical abilities needed to excel in their roles.
Wage Subsidies and EI Premium Holidays: Provide wage subsidies or Employment Insurance (EI) premium holidays for SMEs hiring and training new or inexperienced workers.
These measures would reduce the financial risk of onboarding less experienced candidates, encouraging businesses to invest in workforce development.
Partnerships with Educational Institutions: Foster collaborations between small businesses and colleges, universities, or vocational schools to create apprenticeship and internship programs.
These initiatives would align educational outcomes with employer needs, ensuring that graduates are better prepared for the workforce.
Canada’s small businesses are at a crossroads.
Labour shortages, skills mismatches, and regulatory barriers are holding back growth and productivity, threatening the vitality of SMEs and the broader economy.
The CFIB’s analysis highlights the urgency of addressing these challenges through targeted reforms that enhance labour mobility and workforce quality.
As Marvin Cruz aptly summarizes, “By improving our workforce quality and removing labour mobility barriers, we could boost our productivity and strengthen Canada’s economic competitiveness.”
The time for action is now.
Policymakers, businesses, and educational institutions must work together to bridge the talent gap, empower small businesses, and pave the way for a stronger, more prosperous Canada.
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