Strangely, major economic statistics say that the growth of our purchasing power is stronger than that of inflation. Illusion is all this? Small portrait of progressive impoverishment, second of two.
Pierre Fortin, economist and professor emeritus of economic sciences at UQAM, spoke, in News, to the interesting exercise of measuring the evolution of the purchasing power of the average salary under the effect of the unbridled inflationary surge that we are experiencing. His reading period extends from February 2020 to June 2023. He concludes that the increase in wages has exceeded that of prices. “In June 2023, overall, employees had on average more purchasing power than they had in February 2020,” he writes. We are talking about an increase in average weekly wages of 14.6% in Canada and 18.2% in Quebec in the meantime, against an increase in inflation as measured by the Consumer Price Index ( CPI) of 14.4% and 15.7% respectively.
He takes care to specify that this reading must be modulated to take into account the distortion effect between better-paid jobs and those with low wages induced by the pandemic. And also that the observation applies to the average salary. So it says nothing about the distribution of the increase in wages and prices around this average. To then recall that this purchasing power is also fueled by inflation, which fuels wage increases.
Without forgetting that we cannot neglect government intervention, particularly in the form of one-off sums paid to counter the rising cost of living, improved support for seniors and general tax relief. And what about government support at the height of the pandemic. At one point, driven by these transfers, the growth in household disposable income was almost double that of their consumption, which pushed the savings rate to a peak of more than 25% in the second quarter of 2020.
Which brings us to the evolution of another purchasing power, that of disposable income. Same observation there too. Based on data provided by Jean-Pierre Aubry, independent economist, between the fourth quarters of 2019 and 2022, disposable income increased by 16.8%, or 19.4% if government transfers are taken into account. collected and paid. Over this horizon, the CPI increased by 11.1%. In 2023, it appears that wage growth will follow that of the CPI. We can assume that this is true of disposable income. “I think that the inflationary surge was accompanied by a relatively high level of growth in disposable income,” underlines Jean-Pierre Aubry in an email exchange. But still the same downsides. “There are households who have seen their income increase at a high rate […]. There are big gaps in the distribution of income and, for (decision-makers), there is a problem of income distribution. »
Especially since this surplus of power is eroding if we rely in particular on the 14.3% increase in the “food” component in the CPI between the fourth quarters of 2019 and 2022, and of 13.2% for “housing”. Commodity prices affect low-income earners proportionately more.
And the nuances
The framework behind these large aggregates is obviously intended to be more nuanced. The purchasing power, both of salary and disposable income, during these periods was not without suffering the effect of the lag during the time of the modification of the tax table and the indexation of major transfer programs social, such as the Quebec Pension Plan. The rapid and persistent rise in inflation has accentuated the significance of this gap in the indexation game.
What can we also say about the trade-offs between labor shortages and vacant positions in what we call the Great Resignation? The change in average salary captures changes observed in the relative composition of vacant positions, which moved from positions in lower-paid occupations to positions in higher-paid occupations. Recession or not, nearly one in four Canadians plan to look for a new job in the next year.
To illustrate the contrasting distribution, in a study published in February, the Institute of Statistics of Quebec (ISQ) put the jump in median employment income for 25-64 year olds in all of Quebec at 9% in 2021. An increase (qualified as unprecedented since these data were compiled) which followed the small increase that occurred in 2020, the year the pandemic broke out. In 27 of Quebec’s 104 regional municipalities, the increase exceeded 10%. The ISQ then showed that the increase in employment income greater than 10% was observed mainly among workers aged 25 to 34 and those aged 55 to 64.
Finally, we must add to the equation the evolution of the number of households, of course, but also the return of retirees to the labor market and the increase in the number of people, particularly among young people, taking on a second job, or even to activate in the economy of “small jobs on demand” in response to the soaring cost of living. Added to this is Statistics Canada’s observation of an acceleration in the increase in hours worked exceeding that of production, mitigating the fall in productivity, which continued at the turn of 2023.
Increase in purchasing power? Yes, but with many, many excluded.