Insights

July 2, 2024

Prices have gone up but so have wages. Have Canadians fallen behind?  

Inflation may be cooling (barring last month’s surprise uptick) but less inflation just means prices are going up at a slower rate. The price of milk is now 20% more expensive than it was just five years ago and is unlikely to get any cheaper.  

But it’s not just prices that have gone up. Workers have also seen their wages rise faster in recent years than they did in the past. When unemployment was extremely low and consumer demand was high, businesses had to compete for employees. This meant offering increasingly attractive wages to be able to add, or even simply retain, staff.  

The question is if this has been enough to offset the pain of inflation. As it turns out, it has. Sticker shock aside, Canadians are better off financially than they were five years ago. But it’s not all good news.     

First, the gains are extremely small. Over the last five years, prices rose by 18% while average hourly wages increased by 20% (according to a survey on payrolls that accounts for compositional changes in the workforce). This means “real” wages have grown by just 2%, and Canadians can afford slightly more than they could back then.  

Of course, this is only an average. Plenty of people are not in better financial shape such as those in provinces that have seen weaker wage growth, including Saskatchewan, Newfoundland, and Alberta. Likewise, certain occupations—including those in Construction, Finance, and Hospitality—have seen weaker wage gains. At the same time, higher-than-average price increases for certain items (e.g., rent, gas) will weigh more heavily on some. 

Second, weak real wage growth in recent years is not an anomaly but the continuation of a longer trend. From 2014 to 2019, growth in wages only marginally outpaced increases in prices: 11% versus 8%, leaving real wages up just 3%.  

All this means that Canadians have seen real wages grow by well under 1% per year going all the way back to 2014. With this in mind, perhaps the affordability problem that is top of mind for Canadians today is not just about inflation, per se, but instead reflects something else: a fundamental weakness of Canada’s economy to deliver real improvements in wages for an entire decade.   

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