After a series of historic interest rate hikes, economists are left wondering whether job losses are next.

High interest rates cause businesses and consumers to pull back on spending. As business slows, companies review their staffing levels and unemployment tends to climb.

However, up until now, the Canadian labour market has kept its steam.

"I think it's surprised both market expectations and also the Bank of Canada's expectations," said BMO economist Shelley Kaushik.

In December, the unemployment rate was five per cent, just above the all-time low of 4.9 per cent reached in the summer.

In its latest monetary policy report, the Bank of Canada said it expects the full effects of rate hikes on the labour market to play out over a longer period.

"Part of rebalancing demand and supply in the economy is rebalancing the labour market," said Governor Tiff Macklem during a news conference on Wednesday.

The comment came as the central bank raised its key interest rate for the eighth consecutive time and said it was taking a conditional pause, keeping the door open to further rate hikes if inflation isn't tamed.

Labour groups have voiced concerns about the Bank of Canada's rate hikes in recent months, with Unifor president Lana Payne previously accusing the central bank of waging war on the working class.

Jim Stanford, an economist and the director of the Centre for Future Work, is concerned higher interest rates will slow the economy more than the central bank is anticipating.

"I think that a serious downturn is still more likely than the soft landing," he said.

Stanford said 40 years ago, that was the case when the Bank of Canada fought off runaway inflation with rapid interest rate hikes.

In either case, he said it will mean "higher unemployment and reduced life chances for people who are trying to find a way and in a labour market."

But some economists are cautiously optimistic that employment may prove to be somewhat resilient to the slowdown, given that unemployment is currently near historical lows.

"The hope is that as businesses start to see that slower demand, that they will start to pull those job vacancies before they start firing workers," said Kaushik.

Job vacancies reached record highs last year, with over one million jobs unfilled in the economy.

Since then, the number of unfilled positions have fallen to around 850,000 vacancies in November.

On Thursday, Statistics Canada reported the number of job vacancies fell by 2.4 per cent in November to their lowest level since August 2021.

The Bank of Canada is also hopeful it can rebalance the economy and restore low inflation without trigger massive job losses.

In a research paper published in the fall, Bank of Canada researchers estimated in their base case scenario that restoring normal job vacancy levels would push up the unemployment rate to a peak of 6.7 per cent.

As the economy cools, BMO's forecast suggests Canada's unemployment rate will average at six per cent this year.

And while that does suggest more Canadians will be unemployed, Kaushik said a six per cent unemployment rate is "still fairly low."

A greater loss in unemployment was experienced during the 2008 global financial crisis. According to Statistics Canada, the unemployment rate rose from 6.3 per cent to 8.6 per cent between October 2008 and October 2009.

This report by The Canadian Press was first published Jan. 26, 2023.