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The Progressive Economics Forum

Welcome to the Wageless Recovery

The Harper government likes to remind Canadians that we’ve done better than most developed nations in bouncing back from the global economic crisis. But digging into the data shows why many people might be having trouble cheering this news: wages have not kept pace with inflation, and new hires are making 40 per cent less than the average worker.

Tiff Macklem, senior deputy governor of the Bank of Canada, recently brought home the official storyline: The level of employment is now higher than it was before the crisis; jobs are mostly being created in the private sector, most are full-time and are emerging in industries that pay above-average wages.

These are upbeat metrics, but they are irrelevant to the one thing that matters most to Canadian households and a sustained, broad-based recovery: how much people get paid.

On that count, the data reveal that purchasing power is falling for most Canadians since the recovery began. The average wage paid to Canadians has not kept up with inflation. Real average wages declined by 0.6 per cent between 2009 — the trough of the recession — and 2011, from $23.11 to $22.99. That may not sound like much, but that’s because the bottom half of the wage distribution losing ground faster than the top half. See the attached chart. (Data are from the Labour Force Survey public use microdata file)

 

 

It is true that there are 820,000 more jobs now than in the middle of the Great Recession, but there are still 1.4 million people looking for work — a number that is about 25 per cent higher than before the crisis started, and not steadily declining.

Given this mass of joblessness, the appropriate comparison is not the number of jobs there are, but the number of jobs there could be if the economy was functioning at its potential. The Parliamentary Budget Office has calculated that Canada’s economy would have 130,000 more jobs if it were operating at capacity. Instead, Ottawa and some provinces are about to slow the economy further, as austerity policies start to kick in.

The Government of Canada is hammering down on this story: We have more jobs than we did before, and most of the new growth is in high paying industries. It’s left to the imagination that Canadians have never done better.

Simple math challenges this narrative: if the majority of new jobs are appearing in industries that pay better than average, average wages should be going up, right? But they’re not. What’s up with that?

The above-average paying industries in which job growth has blossomed include finance and real estate, construction, and health care. Average wages in health care are skewed up because of doctors; average wages in the financial sector are skewed up because of executives and high end brokers; average wages in construction are skewed up by high-skilled tradesmen. But not every new hire is a doctor, executive or master electrician.

In fact, new hires are getting paid significantly less than the average wage. While there is always an important differential between new employees and ones that have been on the job for some time, this differential has grown since 2007, before the recession began. Back then, a new worker was paid 30 per cent less than average pay; now it’s 40 per cent less than average.

Don’t be fooled by job creation stats.  We ducked the “jobless recovery” of the 1990s, but welcome to the new normal, for far too many Canadians: the wageless recovery.

This article was first published at the Globe and Mail’s business feature, Economy Lab http://www.theglobeandmail.com/report-on-business/economy/economy-lab/welcome-to-canadas-wageless-recovery/article4852286/  

Comments

Comment from Cuisine Minceur
Time: November 2, 2012, 6:58 am

Very interesting article. I am curious about one thing. Following the PBO’s argument (i.e. that aggregate employment may be 0.8 per cent “below its trend”), it would seem that even if aggregate employment were on trend, the employment rate would be dropping, given growth in the labour force. Presumably, either being on trend is not the same as “operating at capacity”, or the PBO authors adhere to some NAIRU-based view of unemployment?

Comment from Angella MacEwen
Time: November 2, 2012, 7:06 am

The employment rate has dropped, it is the employment *level*, i.e. total number of jobs, that is higher. The number of jobs created hasn’t kept up with the growth in the labour force. That’s why when the government only talks about the number of jobs created, they are being a bit tricksy with their math.

Comment from Paul Tulloch
Time: November 2, 2012, 7:48 am

There is the whole question of the quality of employment being created. Without a nice and decent measure of such- the media tends not to focus on it. So numbers are one thing, but without a firm grasp of the employment quality dynamics, one is left to poke around the edges of such measures.

However one that tells me a whole lot more than employment numbers is the recent report that food bank usage are still above ’08 levels. This could be a factor of not enough jobs, increasing precarious work, and austerity in social programs.

Very sad to hear the food bank report last week. So much need and much wealth we have- yet we still record high demand for food banks.

http://www.theglobeandmail.com/news/national/recessions-legacy-has-food-bank-usage-soaring-in-canada/article4748510/

http://www.theglobeandmail.com/news/national/recessions-legacy-has-food-bank-usage-soaring-in-canada/article4748510/

Comment from duncan cameron
Time: November 2, 2012, 9:14 am

“Wageless recovery” captures nicely an important aspect of what is going on. It could well be picked-up widely and stick as a characterization of the economy under the Harper Cons. Well done Armine.
Refuting the Cons own take is important also. Angella MacEwen makes an important point about labour force growth and employment creation. What about the full-time jobs claim? Do these jobs include the temporary foreign workers?

Comment from tony brogan
Time: November 2, 2012, 5:27 pm

Try Ireland for size. Forced austerity from the troika. Suicides up. housing prices off 45% from the top. Unemployment rising. Stores closing, everyone earning less.
Canada may well be one of the best of a sad bunch. World depression is just getting started.

Comment from Purple Library Guy
Time: November 5, 2012, 11:00 am

Oh, right! The temporary foreign workers–there’s actually so many of them now (wasn’t it like 200,000 or something?), and the rate of increase has been so high, that subtracting them could actually put a noticeable crimp in the apparent job creation.

Comment from Paul Tulloch
Time: November 5, 2012, 12:31 pm

There is the whole question of the quality of employment being created. Without a nice and decent measure of such- the media tends not to focus on it. So numbers are one thing, but without a firm grasp of the employment quality dynamics, one is left to poke around the edges of such measures.

However one that tells me a whole lot more than employment numbers is the recent report that food bank usage are still above ’08 levels. This could be a factor of not enough jobs, increasing precarious work, and austerity in social programs.

Very sad to hear the food bank report last week. So much need and much wealth we have- yet we still record high demand for food banks.

http://www.theglobeandmail.com/news/national/recessions-legacy-has-food-bank-usage-soaring-in-canada/article4748510/

Comment from Toby Sanger
Time: November 5, 2012, 2:36 pm

Very interesting (though grim) results & very good analysis, Armine. Another point is that these new lower paid jobs are going to youth as youth unemployment remains high. Many are being filled by seniors & older workers as well.

Harper’s policy of represssing wages, especially for lower paid workers seems to be working–while he takes a private tour of the Taj Mahal!

Comment from Paul Tulloch
Time: November 5, 2012, 6:35 pm

yes Toby and he brought his own armoured cars at tax paying expense. What, India has no armour cars??

The cost to transport those vehicles could have filled the food banks shelves for hundreds of needy for many months. Why did he need to bring armour cars with him?? And they refuse to tell us how much.

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