Alicia Planincic: Prices have gone up but so have wages. Are Canadians falling behind? 

In each EconMinute, Business Council of Alberta economist Alicia Planincic seeks to better understand the economic issues that matter to Canadians: from business competitiveness to housing affordability to living standards and our country’s lack of productivity growth. She strives to answer burning questions, tackle misconceptions, and uncover what’s really going on in the Canadian economy.

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 percent 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 percent while average hourly wages increased by 20 percent (according to a survey on payrolls that accounts for compositional changes in the workforce). This means “real” wages have grown by just 2 percent, 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 percent versus 8 percent, leaving real wages up just 3 percent.

All this means that Canadians have seen real wages grow by well under 1 percent 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.

This post was originally published by the Business Council of Alberta at businesscouncilab.com.