Thursday, June 12, 2014

Has Workers Lost or Gained Purchasing Power in Canada?

Average hourly wage has increased faster than inflation in Canada but the average rate of pay rise hides some disparities between economic sectors.

Each year, for various reasons such as rising living cost, seniority entitlement, or career advancement, workers benefits from a pay rise in Canada.  For example, the province of Ontario raised the general minimum wage rate to $11 on June 1, 2014. A month earlier, in Quebec, the minimum wage rate jumped to $10.35. The minimum wage rate is the less generous compensation an employee is legally entitled to in return for one hour labor supply. 

I have compared the rise in the average hourly wage to inflation in Canada in order to see whether workers have lost or gained purchasing power. Inflation is the rise in the average price of the goods and services households consume. Has the price of what Canadians consume increased faster than what they earn?
Average Pay Rise and Inflation, Canada, 1998-2013, Data Source: Statistics Canada
Average Pay Rise and Inflation, Canada, 1998-2013, Data Source: Statistics Canada
The above figure shows that the average pay rise has been above inflation except in 2003 and 2011 during the economic crisis. Pay rise, on average, is .84 percentage points above inflation. Last year, for instance, average hourly wage increased by 2.11% whereas prices roses by .9 %. But let us be a bit careful and not rush into the conclusion that all workers are getting better off in Canada. I pointed rising income inequality in Canada.  This brings to my mind to look at the data on hourly wage by economic sector.

In 2013, the average hourly wages in the sector of accommodation and food services and that of agriculture were respectively $13.76 and $15.7, which is less than the half of the average hourly wages in the sectors of public administration ($32.31) and that forestry, fishing, mining and related activities ($34.53). But, pay rises in the two latter sectors were above the national average, 2.62 % and 4.32 % respectively whereas wage only rose by .95 % in the sector of accommodation and food services and fell by .82 % in the sector of agriculture.