News Analysis
High inflation for more than two years is fuelling a surge in the number of labour strikes, which are, in turn, pushing wages higher. That wage-price spiral—where the two feed off each other and spur inflation—is a definite risk, according to a veteran economic analyst.
“We’ve seen increasing militancy of unions this year,” Philip Cross, former chief economic analyst at Statistics Canada and senior fellow at the Macdonald-Laurier Institute, told The Epoch Times on Oct. 9.
Public sector employees, personnel at ports in British Columbia, auto workers, and more have all hit the picket lines recently.
“They see other wages—whether it’s for non-unionized workers or whether it’s for new hires—they see wages going up in some areas in the economy. The pressure is there from higher prices so it’s natural to demand more,” Mr. Cross said.
He added that the Bank of Canada “let the genie out of the bottle” in not acting more decisively sooner to stem the rise in inflation—calling it “transitory”—and now, Canada is faced with an increasing number of labour disputes in the course of “normal human behaviour” when people try to protect themselves from rising costs.
Canada’s September jobs report, released Oct. 6, showed average hourly wages rising by 5 percent year-over-year, following increases of 4.9 percent in August and 5 percent in July.
But for permanent workers, wage growth is running near 10 percent annualized over the last three months, TD Securities noted in response to Canada’s latest jobs report.
“We have started to see more evidence of wage negotiations spilling into the data with wage growth for unionized workers rising by 1.3pp [percentage points] to 3.9 percent y/y [year-over-year],” the investment bank said.
In testimony before the House of Commons Standing Committee on Finance on Oct. 5, Mr. Cross cited U.S. Federal Reserve Chair Jerome Powell stating that wage increases of 3 to 3.5 percent were consistent with 2 percent inflation.
“The implication is that sustaining current wage growth of well over 4 percent is not,” Mr. Cross told parliamentarians.
Productivity Problem
Earlier this year, the Public Service Alliance of Canada (PSAC) negotiated wage increases of 12.6 percent compounded over the life of the agreement from 2021 to 2024. The deal put an end to one of the largest labour actions in Canadian history, involving 120,000 workers in Treasury Board bargaining units.
With an average of about 3.2 percent per year, that shouldn’t be enough to stoke inflationary pressures, Mr. Cross said.
But he warned that such wage increases, combined with Canada’s declining labour productivity, might be problematic for inflation.
“Actually, our productivity is so abysmal—3, 3.5 percent [wage increases] might be inflationary,” Mr. Cross said.
“Our productivity is down 6 percent [over the last nine quarters], and that doesn’t support wage increases of 3 percent,“ Mr. Cross said. ”I’m sorry, the math just doesn’t work. I think the jury’s out on whether PSAC was inflationary or not.”
He added that the United States, with its increasing productivity, can support such wage increases without fuelling inflation.
In June 2022, Metro Ontario warehouse workers in Ottawa ratified a new five-year collective agreement and got average immediate wage increases that ranged from 9 percent to 25 percent, depending on seniority.
“In workplaces covered by collective agreements, recent settlements have produced some of the largest gains in decades. First-year percentage adjustments were up a stunning 7.1 percent as of July,” RBC said in a Sept. 20 note.
Labour’s Structural Challenges
Factors other than inflation that have affected the rise in wages include labour shortages due to Canada’s aging population and an uptick in the nation’s unionization rate.
Canada has a relatively high rate of unionization, at about 30 percent of workers. Nurses, teachers, trades, and manufacturing are examples of such professions.
And even though wage increases for unionized workers since early 2020 lag those obtained by non-unionized workers, by about 7 percent, unions have more bargaining power, said RBC economist Rachel Battaglia during a Sept. 28 podcast.
“Those big wage adjustments are no doubt going to entice other workers and the representatives to be more aggressive with their demands. Especially when workers can soak up a lot of wage increases before even catching up to inflation,” Ms. Battaglia said.
It’s thus critical to get a quick handle on inflation, she added.
“Not only does it erode real income, but it also fosters more turmoil in labour relations, which could keep the Canadian economy in this period of turbulence for longer.”
High Inflation’s Toll
Less work is getting done due to high inflation.
RBC noted that unfilled workdays due to labour stoppages rose 49 percent last year compared to the 10-year average leading up to the pandemic.
RBC added that the number of person-days not worked as of July 2023 is 25 percent higher than the same period in 2022—even though inflation has come down from its 2022 highs.
Meanwhile, Bank of Canada deputy governor Nicolas Vincent, during a speech in Montreal on Oct. 3, said that high inflation is causing firms to raise their prices faster, when ordinarily they’d do so less frequently.
When inflation is low and stable, consumers are more likely to notice price changes, which forces businesses to be more careful about what costs are passed along, he added.
The sharp rise in longer-term bond yields to multi-year highs is signalling that interest rates will stay higher for longer, as the battle against inflation looks far from over.
Mr. Cross said, “We haven’t made the progress on reducing inflation that one would have hoped for, and in fact, inflation—because of the change in wage behaviour, because of the change for pricing behaviour—there’s increasing risk that inflation is becoming more embedded.”
