Canadian wages will go up, Bank of Canada deputy governor says

Bank of Canada deputy governor Carolyn Wilkins said many firms are complaining that they cannot find the right employees to fill openings.

Wage growth is on the horizon as Canada’s economy rebounds from weak oil prices and a decelerating housing market in the second quarter of 2019, predicts a senior Bank of Canada official.

In a speech on Thursday, deputy governor Carolyn Wilkins referred to a “puzzling” absence of wage gains in light of tightness in a labour market where worker shortages are at the highest level since the Great Recession.

Job vacancies are on the rise, she said, currently topping 550,000. Last year, the economy added a net 163,000 full-time positions. Unemployment fell to 5.6 per cent, a historic low. And the participation rate for prime-age workers (aged 25 to 54) was around 87 per cent, near its all-time high.

“If that sounds positive, it’s because it is,” Wilkins told a lunch audience at the Toronto Board of Trade. “Wage growth has picked up considerably to average about 2.5 per cent in 2018, compared with two per cent over the past five years. But we are still shy of what one would expect in a tight labour market.”

After accounting for factors including weakness in energy producing provinces, Wilkins said the bank still has not “found a smoking gun,” just a “couple of compelling suspects” to explain persistently stagnant wages.

Those include a perceived lack of willingness among Canadians to trade up for better jobs after the last recession, and the rise of “non-standard” employment, including contract positions and side gigs like driving for Uber.

Wilkins said many firms are complaining that they cannot find the right employees to fill openings. At the same time, structural factors such as technological advances have weakened demand for routine jobs.

Wilkins expects job turnover to pick up from its current low level, which will spur higher wages, as has been the case in the United States.

“History tells us that job churn will pick up as employment continues to grow,” she said. “This should lead to more employers finding it necessary, and worth their while, to offer higher wages.”

She said the oil and housing headwinds will weigh on growth in the near-term, but the resulting slowdown will be temporary.

“We expect the economic expansion to pick up again after this detour in the second quarter of 2019,” she said. “This should lead to a pickup in wage growth as well.”

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