Wages in Canada may be set to soar as workers’ bargaining power is surging, according to a report from TD Economics.
Notwithstanding a weak jobs report for January, which will likely prove a temporary blip, the economy is “still humming,” the report said.
“Business output has fully recovered, employment is above pre-pandemic levels, and inflation is pushing multi-decade highs,” it noted.
Against that backdrop, however, wage growth has slowed.
According to TD, over the last 12 months, average hourly wages are up just 2.4%, which is well below the 5.5% recorded in 2020, and even the 3.8% gained in 2019.
This slower growth in wages is coming amid a surge in consumer inflation, which means that many households are seeing their incomes outstripped by the rising cost of living.
“With the labour market tight and inflation at 5%, it is surprising that wages have failed to keep up,” the report noted.
Indeed, this is likely set to change, TD said.
“With the drop in consumer purchasing power and employee bargaining power increasing in a drum-tight job market, further wage acceleration is likely in store,” TD said.
The extent to which wages will rise depends on employment gains, the report said. As the jobless rate declines, wage pressure increases.
TD said its analysis found that it typically takes six months to a year for employment gains to fully translate to higher wages.
“Though that seems like a long time, it means that wages at the end of 2022 should see a notable move upwards,” it said.
Alongside employment gains, other signs of forthcoming faster wage growth include elevated job vacancy rates, rising hours worked and increased voluntary quitting.
“As more workers switch jobs, wages tend to rise,” it noted.
Additionally a growing number of part-time workers have shifted to full time, which also tends to raise workers’ bargaining power — and their ability to boost wages.
“Workers have not had this level of bargaining power in decades. Though there have been some factors delaying the growth of wages, our analysis shows that workers will likely see significant wage growth in 2022,” it said.
Other factors that could influence the size and timing of wage gains include the trajectory for inflation and worker productivity, the report noted.