A top Bank of Canada official says the lingering effects of the 2014 oil-price crash should take some of the blame for the country’s disappointing wage gains – but she argues it’s just one of many reasons.
Senior deputy governor Carolyn Wilkins offered explanations Thursday for the country’s “puzzling” stretch of weak wage growth at a time when the job market has been experiencing one of its biggest labour shortages in years.
Lower-than-expected wage expansion, which Wilkins noted is present in other advanced economies, has perplexed many experts.
For starters, Wilkins said the struggles of energy-producing provinces, which began with the late-2014 oil slump, have dragged down national wage-growth numbers.
But she said even after accounting for these regional, sectoral factors, wages have fallen short of where they should be in a tightened job market that has seen Canada’s unemployment rate drop to a 43-year low.
“This is particularly puzzling when you consider what businesses are telling us about how hard it is to fill jobs,” Wilkins told the Toronto Region Board of Trade in a speech.
“As far as I can tell, no one has found a smoking gun. But there are at least a couple of compelling suspects.”
Wilkins went on to list several possibilities.
She said wages are also likely lower than they should be because employers are struggling to find candidates with the right skills to meet their needs, cautious employees are declining to trade up for higher-paying positions with different organizations and others may be reluctant to relocate in order to land a new gig.
When it comes to relocation, she said factors like commuting, housing affordability and proximity to family and friends have a big influence on decisions.
Structural factors, she added, may also be holding back wages.
For instance, she said technological advances have lowered demand for routine jobs and declining competition in some industries has likely eased pressure on dominant companies to boost salaries.
The emergence of the so-called gig economy – including work with companies like the ride-hailing service Uber – has taken away bargaining power for some workers, Wilkins said.
She offered potential areas for policy-makers and businesses to focus on to help improve the job market. They could invest in education and training, find ways to encourage labour mobility and increase the competitiveness of Canadian firms.
The Bank of Canada remains confident that wage growth will pick up its pace.
The measure has already seen an improvement – she said it averaged about 2.5 per cent in 2018 after averaging two per cent over the last five years. The bank said it should be around three per cent.
In the months ahead, Wilkins said the central bank predicts Canada’s economic expansion to pick up its pace after a recent slow patch – and she anticipates wage growth will eventually accelerate along with it.
Wilkins noted the results of the bank’s latest business outlook survey suggested labour shortages were at one of their highest levels since the Great Recession a decade ago. Job vacancies, she added, are still rising in Canada and now total about 550,000.