The Decibel - If you didn’t get a big raise, you probably got a pay cut

Episode Date: December 27, 2022

As part of our picks of the top stories of 2022, we are re-airing this episode on inflation, which originally aired on April 20.With inflation eating into people’s bank accounts, some people are starting to wonder: Hey, is my paycheque shrinking? And according to a new report from the Canadian Centre for Policy Alternatives, it is.Economics reporter Matt Lundy explains how inflation is resulting in a pay cut for most Canadians and what – if anything – you can do about it.Questions? Comments? Ideas? Email us at [e-mail]

From an economic standpoint, when people look back on 2022, the story is very much about inflation and rising interest rates. This week, we're doing something a bit different and looking back on the biggest stories of the year. And the incredible rise of inflation was definitely one of them. The Globe's economics reporter, Matt Lundy, has been following it. So in June, we saw the annual rate of price growth in Canada go to 8.1%. That was the highest in nearly 40 years. Thankfully, we're seeing a bit of progress on that front of late. We've seen annual rates of inflation dip below 7% in recent months. It's still way too high for comfort, but at least we're trending in the right direction. As of last week, the interest rate was at 6.8%, slightly down from October's 6.9%.

Now, the unfortunate part is that the average wage is not increasing at the same pace as inflation. It's not keeping up. So you're getting that reduction in purchasing power still. We spoke to Matt back in April. I'm Maina Karaman-Wellms, and this is The Decibel from The Globe and Mail. Matt, it's great to have you on the show again. Thanks for having me.

How many times have you been on now? Is it like five or six? It's been a few times. I think it's six. Six times. You are a regular guest. I am. Happy to be a regular guest. I am happy to be a regular guest. Thank you for joining us again. Let's dive into this. And I want to start by kind of getting you to walk me through this issue a little bit. Why is it that some Canadians have effectively seen a pay cut in the last year because of inflation? Why is this happening? Yeah, that's a great question. Because I think for a lot of people, they would say, what

are you talking about? I'm getting a pay cut like my wages are the same as last year, a couple of years ago. Maybe even you got a two percent wage increase. But the fact is, inflation is increasing at a faster rate than average wages in this country. So let's say you're going into the grocery store and you've got $100 because that's what it cost last year. So you're pulling things off the shelf. You're not really paying attention to the price. You get to the checkout line and they say, you know what, you're going to have to put back those apples, those oranges. Prices have gone up. Now you might

think to yourself, I got a 3% wage increase last year. You rummage around your pocket, you pull out $3 and they say, okay, well pick one, either the apples or the oranges, right? It turns out the bill is $107. The fact is your purchasing power has gone down. Inflation is really about a reduction in the value of money. So your purchasing power is reduced and effectively this is a pay cut. Your money is not going as far as it used to. And so at this point in time then, on average, what has wage growth been like in Canada? And how many people are really seeing this pay cut that you're talking about? Yeah, so there was this great report recently

by the Canadian Centre for Policy Alternatives. Over the two years of the pandemic, they found that average hourly wages had increased 2.7% a year compared to a 3.4% increase in inflation. And they were finding that around two thirds of Canadians had effectively taken a pay cut in their analysis. Now, however, if you look at recent numbers, so for instance, in February, average hourly wages were up 3.1%, but inflation was up 5.7%. So we've seen this gap of more than 2% between wages and inflation. And that could possibly persist for a while because by all accounts, people who study this stuff on the inflation front,

they think that we're heading for even higher inflation in the months to come. And frankly, wages aren't anywhere close to keeping up. So this issue then could get worse for people who if they're not seeing that increase in their own wage. Absolutely. Okay. So who has seen a raise lately? Because we have heard that certain jobs are actually seeing pay increases, wage increases. Yeah. So I had mentioned a report from the Canadian Centre for Policy Alternatives, and they looked at various industries where, in fact, average wages had increased faster than inflation, like finance, real estate, a lot of your sort of typical white collar industries.

Recently, Toronto Dominion Bank, TD Bank announced that it was giving some sort of a either raise or bonus to most of its employees. So they're either getting a 3% pay raise or people were getting a $1,500 cash bonus. We have seen some nurses who have gotten cash bonuses to come out, although not necessarily pay increases. So it's not necessarily been a bad news story for everyone. What about the flip side of that then? So who has not seen an increase in their wages over the last two years? It's been really noticeable for the hospitality industry. So a lot of like restaurant and hotel employees, as well as people more connected to the public industry. So a lot of like restaurant and hotel employees, as well as people more connected to the public sector. So education workers, healthcare workers,

I had mentioned some bonuses that have gone out to nurses, for instance, they aren't necessarily getting massive pay increases, unfortunately. A lot of those industries are more governed by collective bargaining agreements. They have their wages negotiated in advance. And often they have 1% or 2% annual pay increases. 1% to 2% is often where inflation was. So you were keeping up with increases in the cost of living. Problem now is that we're in this extraordinary time of, you know, inflation is most recently was at 5.7%. On Wednesday, we're getting another inflation report where a lot of people think we're going to be up above 6%. And it's not really calming down.

It sounds like there's kind of an irony, a sad irony in the fact that these jobs, public sector jobs, healthcare, education, these are jobs that have been hit really hard by the pandemic. And they've been jobs that have been really difficult to do during the pandemic. And yet these are the individuals who are not seeing an increase in their wages. Yeah, I think that's a great point. People who are very much on the front lines, whether that's people who are responsible for our food or very directly caring for people in a horrible circumstance. Those are individuals that we're seeing the worst wage increases for, especially when you compare it to the rate of

inflation. And for these public sector jobs, what role do unions play in this? You mentioned collective bargaining, and I would imagine that inflation must be an important consideration when a union looks at collective bargaining. Historically, what we've seen in times of higher inflation is we had often over 1,000 work stoppages a year. Last year, for instance, we had fewer than 200 work stoppages. But now you're starting to hear a lot more about unions, a lot more about strike actions, lockouts, things like that. So I would say keep an eye on that in the coming year, that the longer this sort of high inflation era persists,

the more likely it is that you're going to be seeing people striking. Let's take a step back here and maybe look at some of the details here, Matt. I understand how the government tracks inflation because prices are publicly listed for goods. But how do we know things like the average hourly wage of Canadians? There's a number of ways that we do this. We have two main labor surveys. One is filled out by Canadians. They get contacted by Statistics Canada and they fill out all sorts of questions about their work, including what they make. Then there's also another survey of businesses, and it also brings in CRA, that's Canada Revenue Agency,

data to look at people's weekly earnings. So with all of this, we can break down wages in so many different ways. So hourly and weekly wages, including overtime by men and women of different ages and different industries, permanent employees versus contractors, public versus private sector. I mean, you name it, we have wage data on it, all of which has actually made it really complicated in a lot of ways, because during the early stage of the pandemic, average hourly wages actually shot through the roof. And it wasn't a positive story. That was because early on, people who are making less money, who are often in sort of public facing roles, they were more likely to get laid off. So the workers that we had left over a couple of years ago when we went through millions of layoffs, they're often white collar employees.

So it made the numbers for at least a brief time look really good. And we're going through this transformation in the labor market right now where things don't look like they used to a couple of years ago, all of which makes it really difficult to have a really firm grip on exactly what's happening in wages. The main thing, though, is that clearly they are not increasing as fast as inflation is. So people are taking that pay cut. Do wages generally keep pace with inflation, Matt? Like, is it unusual to have such a drastic difference between inflation and wage growth? You know, it really depends on the month that you're looking at. Sometimes wages are increasing a bit more, sometimes a bit less. If we look historically at this, there's this great

Statistics Canada study which looked at inflation-adjusted wages, exactly what we're talking about now. And during the two decades, basically of the 1980s and 1990s, there was very little wage growth. So after adjusting for inflation, average wages only increased about 4% in two decades. Now, in the first decade of the 2000s, when inflation was a fair bit lower, they found that average hourly wages increased by about 10%. So, you know, it does give you an idea that in the past, we have kept up with inflation in our wages and even seen a little bit of growth. But in those high inflationary times, it definitely takes a big bite out of our wallets. Let's talk about a few other trends that we've been hearing about. I'm wondering how these

elements affect the wage discussion that we're having. The first one I want to talk about is this idea of the great resignation, which we heard a lot about during this pandemic time. How is this playing into the conversation on wages? The first thing to start off with is that the Great Resignation is one, really misunderstood and two, not really happening in Canada. Early on, we were told that the great resignation was about these white collar workers who were burnt out and stressed and they were quitting their jobs and pursuing their passions or moving to the beach in Costa Rica or something. The fact is, in the US, it has been people with lower levels of education, often in low wage service industries and younger people who've been quitting their job. And not because they can suddenly afford to retire or something, but because they can get a better paying job down the

road. But in Canada, we've not really been seeing any indication that something like that is happening. We produce something called like a job switching rate or job changing rate from month to month. Those are people who had a job one month and now work at a different employer the next. And that rate is no higher than it was before the pandemic. And in fact, for most of the pandemic, fewer people were switching their jobs. Clearly, they wanted that sort of job security. Now, how this all factors into wages is that job switching is really good for your wages, typically. And in the U.S., we see that job switchers, they pick up better wage gains than people who are in their jobs for longer.

In fact, job switchers in the U.S. have seen their highest wage gains in two decades. So there's clearly a lot of power to switching their jobs. But Canadians, frankly, haven't been doing that. And there's a pretty good argument to say that they should be switching jobs more. Interesting. I also want to ask you about the unemployment rate. I think it was at 5.3 percent, according to StatsCan last month, which is quite low. So people are employed. What impact does this have on wages then? Yeah, so the unemployment rate you mentioned there is actually at a record low. And that's in nearly 50 years of records. We have never seen the unemployment rate that low. And that has a huge impact on wages because at the same time as a lot of people are at work, more people are employed, significantly more people are employed than before the pandemic.

But employers still want a lot more people. There are more than 800,000 job vacancies around the country, which is very high by historical standards. If there is a scarcity of labor and employers really need workers, they're going to have to drive up wages. And in fact, we are starting to see signs of an acceleration in wages, which is really encouraging for workers. Most recently, we saw average hourly wages increase by 3.4 percent year over year in March, which is the strongest that we've had in quite a while. And it's clearly on that upward trend. So you talk about scarcity of labor driving up wages. And one industry that we know that has struggled to attract workers is the restaurant industry and hospitality. So if they're trying to attract people, are people going back to those jobs getting higher pay? I am a bit curious about that situation and why wage growth hasn't been better.

Frankly, I don't think it's going to be getting much better for a while, in large part because the federal government is opening up the temporary foreign worker program to allow employers to recruit a lot more of these workers from abroad, including to fill positions in the restaurant industry. And a lot of academics out there have shown how that program has suppressed wages. When you come in through this program, you're tied to a specific employer and you don't have the same labor mobility as other people have. So that means that it's sort of, you know, indentured servitude to a specific employer and those people can't go and get better wages elsewhere. So they're going to be working for the bare minimum. And really, you know, it's a huge bailout of the restaurant industry in a sense. And that's going to suppress wages probably in that industry going forward. So I guess I'm trying to get my head around this. If inflation is so high and unemployment is so low, why aren't we seeing a greater increase in wages? I think one element of this is that the labor shortage that we hear about from companies was perhaps not as severe as they were indicating for a long time.

It is clearly a lobbying effort in some respects by hard hit industries to get cheaper labor into the country. And we've seen that with the temporary foreign worker program now getting a big expansion. And now we've gotten to a point where things are starting to get really tight as far as hiring conditions. We are starting to see wages pick up a little bit. It's just been a little slower to materialize. Like I mentioned as well, you haven't had people switching jobs perhaps as much as they normally would, and that's probably going to get wages accelerating as well. So I think those factors have really had a big part to play in this. And throughout this conversation, Matt, I guess the underlying assumption kind of has been that maybe employers should do something to offset inflation for their employees.

Is there an economic reason that benefits employers for paying their people more? It's a huge headache for employers to constantly be looking for workers, to constantly have that turnover. There are obviously costs associated with onboarding new employees, with even recruiting them in the first place. One thing that I've heard from tech companies in particular over the past couple of years is that they often had annual performance reviews or wage reviews with their employees. Some of them, seeing how competitive it is in that market, has switched that up to like six-month reviews. And in fact, their employees

aren't necessarily asking for the pay increases themselves. They're being given the pay increases because those companies know we need to be really proactive about this. Otherwise, we're going to be losing employees. And so lastly here, Matt, let's talk about what people can maybe do about this. So if someone is going to go into their boss's office and try to ask for a raise, how might they make that case? There are a bunch of things that you might want to keep in mind if you're making your case for a wage increase. For one, the unemployment rate is at a record low. If you look at Bank of Canada surveys of businesses, employers are indicating that labor shortages

are as intense as they've ever really seen. So chances are, depending on the industry you're working in, your boss is really feeling it right now and doesn't want to lose workers and knows about those costs of getting someone new into that position. So it is a situation here where workers have relative bargaining power, perhaps the best that they've had in many, many years. And you are in a bit of a position of power here

to ask for something better. And if things don't work out in that process with your employer, as we've seen, especially in the U.S., switching jobs can have a really positive impact on your wages. And that is something that people should explore. Matt, thank you so much for joining us today. Yeah, thanks again for having me. That's it for today. I'm Manika Raman-Wilms. Our producers are Madeline White and Cheryl Sutherland.

David Crosby edits the show. Kasia Mihailovic is our senior producer. And Angela Pachenza is our executive editor. Thanks so much for listening, and I'll talk to you tomorrow.