Worker wage gains flatline as employers target costs

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Employers are holding the line on labour costs, especially those in the public sector.

Unionized workers saw average annual pay increases of just 0.5 per cent in the first quarter of this year – the smallest gain in 17 years, federal government data show. That's about half the rate of inflation.

The slowdown in wage gains reflects several threads running through the economy: squeezed profits and globalization on the corporate side are prompting some firms, particularly factories, to take a hard look at labour costs.

At the same time, the public sector is tightening spending. Nine in ten workers in the quarter's wage agreements work in the public sector, where wage gains averaged just 0.3 per cent compared with 2.3 per cent in the private sector.

"The game has changed significantly since the most recent downturn," said George King, Windsor-based partner at McTague Law Firm who represents both public and private employers. "The compensation packages are now much more modest."

The biggest shifts he's seeing: the end of defined-benefit pension plans for new hires and lump-sum annual cash payments rather than fixed pay increases (so that in the following year workers return to their base salaries).

The length of contracts, too, has tumbled – reflecting an uncertain economic outlook.

The average duration fell to just longer than two years (or 26.6 months), the lowest level since 1986, according to Human Resources and Skills Development Canada.

That's a big change from the last time the same parties negotiated agreements, when typical wage hikes were 2.3 per cent and the duration average was 43.6 months.

Many workers will lose ground, in real terms, in the years ahead, given that the Bank of Canada expects inflation to pick up to 2 per cent by mid-2015. The first-quarter results are based on a review of 191 settlements covering 342,000 workers.

It's not just a one-month blip. Wage hikes last year were on average half as large as 2007 levels (at 1.7 per cent compared with 3.3 per cent on average five years earlier), the HRSDC data show.

Together, it spells tough times for unions trying to negotiate better agreements for workers.

"The trend line is down," said Paul Moist, president of the Canadian Union of Public Employees, the country's largest union. The public-sector side "is functioning in recession-like conditions when it comes to bargaining." Lower real wages will crimp consumer spending and send debt levels even higher, hurting the broader economy, he added.

In the first quarter, the lower public-sector gains were largely due to the Ontario education sector wage freeze, HRSDC said.

Seven in ten employees covered in the agreements saw wage freezes. Most of them are in the public sector – but the private sector, too, is seeing its share of muted gains. Workers at General Dynamics Corp., a defence manufacturer, Cargill Ltd., a food company, and Sunwing Airlines Inc., a charter airline, have also settled agreements with average annual pay hikes of 1.7 per cent or less in recent months.

Patterns vary across sector and region. Suncor Energy Inc. workers in four provinces recently sealed an agreement that will see wage hikes of 10.5 per cent over three years, in what their union called "one of the best economic settlements in the 20-year history of the national energy and bargaining program."

Labour strife seems to be heating up. There are currently at least six major work stoppages in Canada, which include a lockout at United States Steel Corp., walkouts by foreign service officers of the Treasury Board of Canada and a strike at the National Elevator & Escalator Association. About 30 per cent of Canadian workers are unionized, according to HRSDC.

Mr. King, a lawyer with 32 years of experience, said wage pressure in manufacturing will continue. Times have tilted for the public sector, as well. He remembers, in decades past, sitting around the bargaining table where negotiations would include wage hikes of 7 per cent and 8 per cent.

Not now. "I don't think the pressure is going to go away," he says. "The heady days of those kinds of settlements are gone."