The combination of a fiercely competitive job market and an ever-rising cost of living is likely to convince more companies to raise salaries for their employees this year, experts say.
“Wage gains could accelerate further,” said Royal Bank economist Claire Fan, given the current work environment. “The high demand for workers is colliding firmly with a limited supply, and businesses will need to do what they can to compete in a fiercely competitive environment. And that includes raising wages,” she explains.
The latest Canadian jobs report found wage gains for permanent workers hit 4.5% in May. Factoring in soaring consumer prices, those gains don’t add up to much, but that’s a departure from the wage stagnation that Canada has experienced.
Given that corporate profits rose by $29 billion in the first quarter of this year, Mme Fan thinks several of them can absorb the raises. “Businesses should have some leeway to resist higher wages in the context of extremely high consumer demand at the moment, which should continue to support business production, at least until the end of the year,” she said.
“Inevitable”
Stephanie Ross, director of labor studies at McMaster University, believes wage increases are “inevitable” in the current climate. “Employers are going to have to take on more risk than they have if they’re going to deal with all the service and supply chain disruptions we’ve seen,” she says. This is frankly a big change from the past 40 years, when the economic growth strategies of many countries and companies relied on low wages and job insecurity. »
She warns, however, that there will be major negative effects on workers, such as layoffs, if the Bank of Canada slows the economy too much with its interest rate hikes.
If inflation manages to get closer to the Bank of Canada’s 2% target, it is around this level that Mme Fan expects wage growth to eventually ease.
“The Bank of Canada, like the US Fed, has assessed the current economic environment as plagued by excess demand, and this is also true for labor market conditions,” said M.me Fan. “Tighter monetary policy will help absorb this excess demand and restore some balance to labor markets, so that the supply of workers will have time to catch up, and wage growth can then normalize to lows. levels close to the target range [de la banque centrale]. »