It's not quite accurate to say that Canada has an income-growth problem. Alberta has the income-growth problem. Canada has an Alberta problem.
It has been one of the great disappointments of Canada's ongoing economic recovery that even as the economy has achieved modest growth, wages have been left behind. And the problem has been getting worse rather than better: A Statistics Canada report last week noted that Canadians' average year-over-year earnings growth has slipped from 2.6 per cent in 2014 to a tepid 1.8 per cent in 2015, to a puny average of 0.4 per cent in the first half of 2016. Its a distressing signal about the health of the labour market and the well-being of Canadian households. But while this trend may pose a national dilemma, it's far from a national phenomenon.
As Statscan points out in that same report, most of the problem can be traced to slumping wages in a single province – Alberta, whose economy remains in upheaval following the 2014 collapse of oil prices.
Statscan noted that at their low ebb, in January, 2016, Albertans' average weekly earnings had declined 4.8 per cent year over year. That's in considerable contrast to the story in most of the rest of the country, where wages, while hardly booming, were still showing generally positive growth, especially in the non-resource manufacturing heartland of central Canada. Quebec's year-over-year earnings were up 1.8 per cent. Ontario's were up 1.4 per cent. Without Alberta, average wages would have been up about 1 per cent year over year. But Alberta's slump sapped nearly a full percentage point off that national average, reducing year-over-year growth nationwide to a minuscule 0.1 per cent.
The numbers have brightened more recently, but continue to show a huge discrepancy between the trend in Alberta and in the less resource-exposed rest of the country. In August (the latest figures available), the national year-over-year wage growth was 1.6 per cent; growth in Quebec and Ontario was 2.5 per cent and 2.1 per cent, respectively. But Alberta's wages were still down 0.5 per cent from a year earlier. That marks 15 consecutive months that Albertans' paycheques have shrunk from a year earlier; they're more than 4 per cent below their early-2015 peak.
It's notable that Alberta's average wages have continued to slump despite what has looked like some impressively resilient employment numbers in the province. Alberta's total employment is essentially flat over the past nine months, and is up nearly 25,000 since the middle of the year.
But when you look at the details of these jobs, you see the evidence of the Alberta economy's rotation away from its slumping energy base – and the profound impact this process is having on wages.
In short, the composition of the province's labour market has been undergoing a transformation, and it has been toward lower-paying work. Since the wage-growth peak of January, 2015, employment in the resource-extraction sector – where wages are considerably above the province's overall average – is down nearly 25,000. Employment in three below-average-paying sectors – wholesale and retail trade, health care and social assistance, and education services – is up 58,000.
Alberta's labour market has also tilted increasingly toward part-time work. Since January, 2015, the province has added 53,000 part-time jobs – but lost 91,000 full-time positions.
Add these two trends together, and it's clear how Albertans' wages have eroded to a much greater degree than total employment. A lot of people who are still working have been forced to take lower-paying jobs than they had before.
Alberta is the extreme case of the rotation the Canadian economy as a whole has been grappling with – away from a focus on resources and toward non-resource manufacturing and exports. Indeed, the Bank of Canada has been talking about this rotation for a long time as it has charted a path for the country's monetary policy.
But the divergence in wage trends, between Alberta on one hand, and Ontario and Quebec on the other, underline the dilemma that the central bank faces as it tries to assess the underlying wage trends in the national economy, and their important implications on inflation – the critical variable that guides the bank's setting of interest rates. The bank dealing with an economy split in two – an Alberta-centred resource segment that remains essentially in recession, with little inflationary pressure, and a non-resource segment where wages are beginning to generate meaningful inflation.
The two sides send conflicting signals about the direction for inflation and interest rates, and the Bank of Canada is caught in the middle. Simply averaging the two opposing trends, and declaring wage inflation to be tame, is neither meaningful nor particularly helpful from a policy-setting standpoint. The central bank is going to have to be vigilant about the composition of employment and wage growth, both regionally and by sector, if it wants to stay on top of these key trends as the country's complex economic makeover continues.
David Parkinson