The Canadian workforce is experiencing some of the hottest wage growth in years, fuelled by employers seeking to fill job vacancies by offering competitive pay and hiring bonuses. On average, though, new hires have been the primary recipients of significant salary bumps, while established employees have faced moderate to meagre gains.

Average hourly wages were 5.2% higher in November compared with two years earlier, Statistics Canada reported. Across all industries, average wages grew at a rate of 10% for new employees — those with job tenure of three months or less — compared to 6.4% for employees that have been in their current job for 18 months or longer.

The differences are most apparent in industries where job vacancies are high. In food services, new hires welcomed wage increases of 8.5% from two years earlier, while established employees saw gains of 2.3%. 

Canada reported more than one million job vacancies in September, most of which stemmed from food services, health care and retail trade. Typically, surges in the number of job vacancies can be attributed to a healthy increase in economic activity, driven by employers creating new roles and expanding capacity. But it can also signal structural imbalances in the labour market, when workers disproportionately gravitate to some jobs while abandoning others.

Recent labour surveys show workers leaving their food services jobs en masse while employment in the professional services sector surges. According to Statistics Canada, the professional services sectors, which includes secretaries, assistants and office managers, has gained 191,600 jobs since the pandemic began, while restaurants, pubs and catering services have lost roughly 178,800 workers over that same period of time.

Structural imbalances can also permeate within worker-deprived industries, noted Avery Shenfeld, chief economist at CIBC World Markets. “Some sectors are experiencing worker shortages in particular occupations, so firms that are getting desperate to fill those positions are stepping up with larger pay offers. That won’t yet push up wages for all workers in the same industry, since for other jobs there might still be enough worker availability and no need to hire,” Shenfeld said.

Pandemic-related inflationary pressure has outpaced workers’ average wage growth, leaving consumers with reduced purchasing power even as their salaries have grown. Consumer prices grew 4.7% in November, an 18-year high driven by gasoline prices and housing costs. A modest increase in raw wages, in turn, actually represents an overall wage decrease if the increase does not match the rate of inflation.

Construction workers, for example, earned an average hourly wage increase of 3.8% over the past year, from $31 per hour in November 2020 to $32.20 in November 2021. When adjusting for a 4.7% rise in the cost of living over that same period, those workers faced a real wage decrease of 0.9%.

In the U.S., where wages have increased at the fastest rate in decades, economists have surfaced fears of a “wage-price spiral,” where employees secure higher wages and employers pass the cost of those wages onto consumers.

The Bank of Canada, which expects the inflation rate to hit 5% by the end of the year, has said it is watching closely for signs of wage inflation but does not expect worker compensation to create pressure on consumer prices. “If you look at the various wage measures, they’re actually still somewhat below their pre-pandemic levels,” said Bank of Canada governor Tiff Macklem in October. As of November, wages had grown 2.4% year over year.

Recent data suggests wage growth has not made much of an impact on consumer prices, said David Macdonald, senior economist at the Canadian Centre for Policy Alternatives. While some sectors have boosted pay for new hires, wage growth across the economy has not kept pace with inflation.

But recent inflation data suggests wage growth has not made much of an impact on consumer prices, said David Macdonald, senior economist at the Canadian Centre for Policy Alternatives. While some sectors have boosted pay for new hires, wage growth across the economy has not kept pace with inflation. “Workers are treading water. They’re not getting ahead, and most aren’t falling behind. On average, they’re just staying afloat,” said Macdonald.

In the coming months, however, earnings could continue to rise as employers seek to retain long-term employees who want to keep pace with the rising wages of their less experienced coworkers, Macdonald said.

Shenfeld noted the delay in wage growth for experienced workers might relate to when they are allowed to seek pay increases. “Existing employees might only have their wage rates reset once a year. So it might be that their day in the sun is coming when their next pay renewal arrives,” he said.

Source: The Star