Many Canadians pride themselves on living in an inclusive country. But our economy may be less inclusive than most realize.
Although our national GDP has more than doubled since 1976, the median worker’s real wage has barely increased since that time. Economic progress should be assessed by the purchasing power of median wages, not, as is too often the case, by profits or share prices.
In our recently published study, we reveal that between 1976 and 2019, the hourly real wage of the median worker in Canada grew just 0.14 per cent per year – this, despite significant advances in technology and higher levels of education. On the other hand, labour productivity grew 1.1 per cent per year. This has meant the hourly wage earned by the typical worker (in 2012 dollars) grew from $16.40 to $17.40, while the worker’s hourly productivity grew from $37.60 to $60.20.
Put another way, while productivity grew 60 per cent, the typical worker’s wage only grew 6 per cent.
Why weren’t productivity gains shared equally? Our study finds that roughly three quarters of the gap between productivity and median wages can be explained by growing inequality.
Top earners in our economy have been reaping a double dividend. On the one hand, higher paid workers have been taking home a greater share of wages overall, and on the other hand, the owners of capital have been receiving a greater share of total income. This latter phenomenon has happened because the income going to investors has grown at a faster rate than the income going to labour in the form of wages and other benefits.
The top wage earners whose salaries have grown the most are generally also those who can afford to save and invest more, meaning they benefit from both these trends simultaneously.
The other quarter of the wage-productivity gap is because the prices of goods and services produced in Canada have grown more slowly than those consumed domestically, which erodes workers’ buying power.
The Canadian economy has been far from inclusive over the past 40 years. However, there are reasons for optimism.
Since 2000, median wages have grown 0.53 per cent per year, reducing the wage-productivity gap to less than half its pre-2000 rate — that’s good news. And 2013 to 2019 saw the growth rate for median wages rise to 0.75 per cent per year — a trend in the right direction.
Although top-end wages continue to grow faster than those in the middle, the share of economic growth going to capital as opposed to labour has more or less stabilized since 2000. What this means is that workers since 2000 — and especially in recent years — have been in a better position to make demands of their employers compared to the 1976-2000 period.
Three key factors explain this improved bargaining power. First, lower average unemployment rates have meant there are fewer job-seekers for employers to turn to since 2000. Employers have to offer better deals in order to fill positions.
Second, although the share of workers who belong to a union is lower overall today than in 1976, the drastic decline in unionization which took place in the 1980s and 1990s has not been repeated in the past 20 years. The ability to bargain collectively has not been eroded nearly as quickly as it was in the last century.
Finally, the slower pace of trade liberalization since 2000 has meant that workers today may paradoxically face less threat of offshoring than those of the past, as the most easily offshored jobs have long since been shifted abroad.
These long-term trends appeared before the pandemic, but events since 2020 may be reinforcing them.
Although the so-called “Great Resignation” taking place in the United States has not been replicated in Canada, employees north of the border do appear more willing than ever to hold out for a better offer. Statistics Canada reported that job vacancies reached an all-time high in 2021, with almost a million postings going unfilled.
The largest increase in vacancies took place among the lowest-wage occupations such as retail and food service, which may indicate these workers are choosing to hold out for better deals or are seeking work in higher-paid industries. Employers may need to continue to increase their offers if they want to fill openings.
We appear to be entering a new, more worker-friendly economic era, but an inclusive economy is still a long way off.
Photo courtesy of iStock
