Wages in 2009 failing to keep pace

Employment and wages conspiring against recovery

Canada has just recorded its first deflationary month in 15 years. It has also recorded a quarter of wage deflation. The two trends may be uniting to create a dangerous economic spiral that can, at the very least, slow the recovery drastically. At worst, it might stifle it.

Not only is the number of Canadians employed declining, but the total wages that we take home is also dropping.

Statistics Canada is reporting in the Labour Force Survey that average weekly wages in Canada fell by $2.81 between January and June of 2009. Especially hard hit were temporary workers, whose hourly wages went from $17.97 to $16.79.

The Survey of Employment, Payrolls and Hours, which uses a different methodology from the Labour Force Survey, shows that overall average wages increased by 0.4 per cent from January to April, with goods-producing industries falling by 1.7 per cent and service-producing growing by 1.2 per cent. Public administration grew by 3.3 per cent.

On the goods side, forestry, construction and manufacturing saw declines; mining and utilities experienced increases. In services, trade and accommodation were down, but most other subsectors were up.

Some commentators are suggesting that the collective impact of lower employment, falling wages and the fear of unemployment will drive up savings and slash consumption. At this point, that is exactly what the economy does not need.

An article in the July 20 Globe and Mail quotes several economists as expecting wage deflation in the coming months. The result would be a decrease in consumer purchasing power and a push towards price deflation in the broader economy.

The most optimistic of the commentators are hoping that wages can keep pace with inflation.

However, some of the indications are positive. Between January and June, total weekly hours increased by 0.4 with full-time flat and part-time higher by one. Weekly full-time wages are down, but part-time wages are up.

And, a survey cited in the Globe and Mail article suggests that most companies that have frozen or reduced wages do not see the need for more. Nearly half are expecting to reverse course and increase wages during the next 12 months.

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