Fraser Forum

Canada’s 21st century wage miracle

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OK, so “miracle” is a little strong. But the following caught my eye in this week’s Economist cover story on the German economy: “[S]ince 2010, Germany ties with Canada for the fastest wage growth among G7 countries.” The context was the Economist’s concern that a tight German labour market might be leading to inflation—what used to be called “cost-push” inflation, as higher wages lead to higher prices and so on and so on.  

Canada’s central bank is also worried about inflation. Hence this week’s increase in its target for the overnight lending rate, the first in seven years (seven very lean years if you’re a saver hoping to harvest interest income). But the overall mindset in Canada is more that: our economy hasn’t been doing very well lately, wages and incomes have been stuck in neutral since the Crash of 2008, and we’re still slowly emerging from a recession caused by the dip in oil prices.

So for us to be a wage leader in any respect is a bit of a surprise.

The Economist story doesn’t say exactly which wage series it’s working from so I visited OECD.Stat to see for myself. Its main wage series (found under “Labour”) is “Average annual wages,” which is calculated “per full-time and full-year equivalent employee in the total economy,” a concept described in a little more detail here.

So how are we doing?

Pretty well, in G7 terms. Since 2010, nominal wages are up 17.8 per cent in Canada. That’s actually higher than in Germany, where they’ve risen 16.7 per cent. In the United States, our normal comparison country, they’re up just 14.9 per cent. No other G7 country is in double digits.

But nominal wages rising isn’t great news if inflation is eating up the gains. So we should really be interested in real wages. Here Germany beats us, with a 9.1 per cent increase 2010-16, vs. our 8.0. But our two countries are clearly head of the class. The rest finish as follows: U.S. 5.5, France 4.4, Japan -0.4, UK -1.4, Italy -2.3. That’s right. In three of the world’s richest countries, average real wages are lower today than they were in 2010.

If you take a slightly longer perspective and look at the change in real wages since 2000, we are the star G7 student by far. The percentage increases in average real wages 2000-2016 are: Canada 24.3, France 19.5, U.S. 16.0, UK 14.7, Germany 12.1, Italy 2.9 and Japan -1.3. That’s a pretty good margin over six of the world’s richest countries.

Rates of change aren’t everything, of course. Where wages stand is also important. In that regard, measuring them in 2016 $US, calculated on a purchasing-power-parity (PPP) basis, average wages in Canada were $48,403 in 2016. That’s a poor second to the U.S., where they were $60,154. But it beats everyone else in the G7 club: Germany $46,389, France $42,992, UK $42,835, Japan $39,113, Italy $35,397.

I suspect those will be surprising numbers to many Canadians who probably assume we do worse than the two economic powerhouses, Germany and Japan. These days, despite our recent economic difficulties, it seems we don’t.


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