Bank of Canada sees sluggish wage growth picking up in 2019

Job churn expected to be contributing factor

Bank of Canada sees sluggish wage growth picking up in 2019
A Canadian flag flies above steel factories in Hamilton, Ont., on March 9, 2018. REUTERS/Peter Power

OTTAWA (Reuters) — Stubbornly low wage growth in Canada should start picking up later this year as the economy overcomes a slowdown caused by weak oil prices and housing market softness, Carolyn Wilkins, a senior deputy governor at the Bank of Canada, said on Thursday.

The central bank has long fretted over the anemic growth in compensation despite a tight labour market. The national average year-over-year wage growth of permanent employees remained at 1.5 per cent in December, the lowest since the 1.2 per cent recorded in July 2017.

"We expect the economic expansion to pick up again ... in the second quarter of 2019. This should lead to a pickup in wage growth as well," Wilkins said in a speech in Toronto.

The bank, she added, would do its part to meet inflation objectives but made no mention of the need for further rate hikes. The bank stayed on the sidelines on Jan. 9 and market traders expect it to hold rates steady once again on March 6.

But despite the unemployment rate hitting 40-year-lows, Wilkins said it would be "too hasty" to conclude that the country's job market was at a point where inflation pressures were starting to build.

"Wage growth has picked up considerably ... but we are still shy of what one would expect in a tight labour market," she said.

Reasons for that include layoffs in the energy-producing provinces of Alberta, Saskatchewan and Newfoundland and Labrador. Employment in the oil and gas sector has slumped by about 20 per cent since 2015.

Other factors include the reluctance of people already in jobs to look for employment elsewhere or to move to other regions.

The so-called gig economy has also created new jobs that reduce the bargaining power of workers, Wilkins added.

"History tells us that job churn will pick up as employment continues to grow. This should lead to more employers finding it necessary ... to offer higher wages," she said.

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