A Closer Look at Wage Growth

StatsCan reported last Friday that, based on data from the Labour Force Survey, hourly wages were up by 4.2% September, 2006 to September, 2007, the biggest monthly increase since the Survey began collecting wage data in 2007. With inflation running at 1.7%, it’s no wonder that news of a real wage increase of 2.5% in the context of a national unemployment rate of just 5.9% (the lowest since 1974) has most observers convinced that the Bank of Canada will not be cutting interest rates anytime soon. I fear that may indeed be the case, given that the Bank does closely monitor the LFS wage data as a leading sign of what’s going on in the job market.
Real wages do seem to be rising in a context of low unemployment, which is a decidedly good thing for workers, and well overdue. However, I doubt that wages are growing at the pace suggested by the LFS data.

The Survey of Employment, Earnings and Hours (SEEH) based on employer records – shows smaller increases than the LFS which is based on a sample survey of households. In the latest month for which we have data, July, Average Weekly Earnings were up by 3.7% compared to a year earlier, and the hourly earnings (including overtime) of hourly paid workers were up by just 3.0% compared to a year ago (and up by just 2.4% in hard-hit Ontario, compared to 4.5% in Alberta.)

The SEEH survey suggests that recent payroll job growth has been concentrated in low wage industries – with the majority of the new jobs created over the past year – 138,000 out of 264,000 – being in the two lowest paid sectors, trade and accommodation and food services. For hourly paid workers in trade, wages actually fell over the last year, though they are indeed up, by 4.2% nationally , in accommodation and food services. (The increase in accommodation and food services was 6.2% in Alberta.)

I’ve just received from Statistics Canada some custom data from the Labour Force Survey which suggest that the proportion of low wage workers in the workforce is increasing (after falling from 2000 to 2006) . The proportion of employees making less than two-thirds of the national median wage (or less than $12.00 per hour today) rose from 24.7% in 2006, to 26.1% in the first nine months of 2007, with a particularly big jump in Ontario, from 23.5% to 25.9%. Meanwhile, the proportion of low wage workers in Alberta has continued to fall, from 19.8% to 18.6%.

The latest data on union wage settlements show that these averaged 3.0% in both the public and private sectors in the second quarter of 2007, with settlements averaging above 4% only in Alberta and Saskatchewan. The very latest numbers, for July, showed a jump to an average 3.8% wage settlement, but this was driven by one big agreement in Alberta. Wage settlements elsewhere averaged 2.9%.

Concentrating on average wage increases distracts attention from the regional distribution. It does seem that workers, including lower wage workers, are making some gains in Western Canada, especially in Alberta. But even here wages are lagging prices if we measure these by the Alberta as opposed to national inflation rate . Meanwhile, we see a tilt towards job growth in low wage jobs, especially in Central Canada, and few signs of a very tight job market.

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