Higher wages: to a problem of inflation?

Hausse des salaires: vers un problème d’inflation?

Photo: Rick T. Wilking, Getty Images / AFP
One of the main reasons for the increase of wages in Canada seems to be the competition more robust than are the firms for the workforce, emphasizes the analysis of Desjardins.

The scarcity of labour pushing up wages in Canada. If the phenomenon is not accompanied by soon an equivalent increase in productivity, the country could find itself with an inflation problem on the arms, prevents the Movement Desjardins.

Wages show a solid pace of growth for a little over a year in most regions and economic sectors in Canada, recalled the senior economist of the Mouvement Desjardins, Benoit P. Durocher, in an analysis Wednesday. The average hourly wage showed a June increase of 3.6 % compared to the same period last year against a rate of inflation of 2.5 %.

This month, the Québec reported a growth of the lower level of pay, with an increase in the hourly wage of 2.1 % in the last 12 months (against a rate of inflation of 2 %), while it amounted to 4.3 % in Ontario and even to 6.1 % in British Columbia. Benoit P. Durocher, however, takes this data monthly with a grain of salt, noting, for example, that six months earlier the increase in the hourly wage in a year had been 3.6 per cent in Quebec, more than the canadian average (3.3 per cent). “In fact, the trends in Quebec and in the rest of Canada are quite similar when viewed over several months, and excluding British Columbia, where the growth is more marked,” he said in a telephone interview with the Duty.

The situation in Quebec is even more favourable if we look at it, this time, statistics on the average weekly earnings, he notes. His most recent measure was, in effect, a rise of 4.8 % in Québec in a year, against an average of about 3 % in Canada and Ontario. In the absence of increases in the hourly wage is stronger than elsewhere, such an increase in compensation suggests that Quebecers have added more hours than the others in their work week, ” says the economist of the Mouvement Desjardins.

One of the main reasons for the increase of wages in Canada is the competition stronger and stronger that are in the business for the workforce, emphasizes the analysis of Desjardins. One-third of canadian firms reported this spring that the lack of staff limited their ability to respond to the request. This scarcity of labour arises from the strength of the economy that keeps the unemployment rate close to its low of the past 40 years, but also from the reduction in the number of people of working age with the ageing of the population.

To be particularly serious in British Columbia, but also in Quebec where aging is more marked, the problem of scarcity of labour is likely to continue “for some time” an upward pressure on wages.

Necessary productivity gains

All would be well if these wage increases went hand in hand with an equivalent increase in productivity, that is to say, the wealth produced per hour worked, ” observes Benoit P. Durocher. The higher wages would then not be a repartage normal with the workers of a part of these economic progress. “However, it is nothing. The productivity of labour has rather lost ground in recent quarters ” and everything indicates that the situation is not the way to be correct.

In this case, higher wages may lead rather to an increase in the price of goods and services. In addition to deleting a portion, if not all of the wage gains of the workers, this acceleration in inflation could force the Bank of Canada to respond more quickly than expected interest rates in order to maintain the long-term growth of the price within its target of between 1 % and 3 %.

But there is still no imminent danger, said Desjardins. Statement by 0.25 percentage point last month, the key rate of the central bank is still rather expansionary to 1.5 %. The speed of his recovery to a neutral rate (estimated between 2.5% and 3.5 %) will now depend on the evolution of all these factors.