If the world were to have another Great Plague of the kind that swept Europe in the 1300s, odds are your wages would rise sharply.
On the downside, you’d only get the raise if you weren’t among the 30 to 50 per cent of the population killed by disease.
By the conventional rules of economics, it is quite reasonable that a shortage of workers should lead to rising wages in the same way as a shortage of oil pushes up the price of crude.
According to many economic historians, while the 1300s did not have a wage economy the way we think of it today, following a period of disruption caused by the mass die-off, living conditions began to improve for the poorest workers. People with skills did even better.
Average wage growth 2.8%
That intuitive relationship between a shortage of labour and its rising price is one reason experts have been stumped as to why Canadian wage growth has remained stagnant over the last few years even while the unemployment rate hovered near record lows.
As of Friday, there is evidence that has changed. Just as the jobless rate hit a 43-year low of 5.4 per cent, an increase in wages kicked in, as well, with the overall rate of increase at 2.8 per cent.
That’s well above the general rise in prices indicated by the latest inflation rate, which means Canadian wage earners, on average, are getting richer in terms of take-home pay.
Not only that, but the data shows that despite an influx of potential workers via immigration, a falling participation rate indicates fewer Canadians in the workforce. Many are retiring.
“Canada’s labour force shrank by 49,200 in May, the largest decline since January 2018,” said Cory Renner, economist at the Conference Board of Canada. “The decline … resulted in the participation rate dropping 0.2 points to 65.7.”
It is well known that wage increases depend on where you live and what sector you work in. But one thing is clear: For the wage increase to average 2.8 per cent, a lot of people must have got an increase of more than that.
If your increase was 2.8 per cent or less, you’re failing to keep up with the Joneses.
Ontario wage cap bucks a trend
And if your increase was less than the current inflation rate of two per cent, you are effectively getting poorer. That’s the way inflation works: Even though it seems as if your take-home pay has increased, your income will buy less stuff than it did a year ago.
That fact may be a cause for disenchantment among public sector workers in Ontario, where the provincial government is capping raises at one per cent over the next three years.
Getting a better read of who is winning and who is losing in the Canadian job market is the aim of Steven Tobin, executive director of the Labour Market Information Council, a research group formed by the federal and provincial governments, working closely with Statistics Canada.
“Basically this notion of looking just at the average wages is not going to tell you anything,” says Tobin, who describes a complex and dynamic job market that his team of experts is trying to decipher. The recent period of stagnant wage increases, for example, may reflect a disproportionate number of high-wage workers leaving the workforce.
Also, average wages may reflect rising incomes in one sector or one region that leaves many others behind.
It may be that Canada needs something more like the U.S. Job Openings and Labour Turnover Survey, or JOLTS, where things like the “quit rate” form a better picture of labour market strength, said Julia Pollack, labour economist with the California-based job search company ZipRecruiter.
Pollack, who also keeps an eye on Canadian statistics, is one of those who says rising jobs and wages may be part of a trend. If so, it’s one that the Ontario government seems to be trying to fight. She contrasts the Ontario plan with that of Singapore, where public workers are highly paid in the belief that helps secure the best workers.
Like central bankers, the Harvard-trained Pollack thinks a bit of wage inflation could be a good thing for the economy. And unlike some who think low wages make an economy strong, the private sector economist begs to differ.
“Rising wages are the way to improve people’s real consumption and living standards,” said Pollack.
And she said that for those who think they are falling behind, now, during a labour shortage may be the time to put yourself out on the job market.
“On average, quitting a job leads to something like a seven per cent or eight per cent increase in earnings, and it’s responsible for a pretty large share of overall wage increases over one’s lifetime.”
Then there’s the opposite scenario: A glut of labour can leave even hard-working people in poverty, as recorded by Jack London is his 1903 book The People of the Abyss.
The U.S. author, best known for his adventure tales Call of the Wild and White Fang, spent six weeks living as a poor person in London’s poverty-stricken East End, noting that a surfeit of workers had pushed earnings so low, families starved to death in the street.
The book is an antidote to Downton Abbey-type stories because it exposes the other extreme of a British Empire that was at that point the richest entity since Imperial Rome.
One thing the author observed was that in North America, where there was a shortage of labour at the time, workers doing the same jobs as those in the U.K. were better paid and better fed. And he said that showed up in the quality of American work.
“The man with the high standard of living will always do more work and better than the man with the low standard of living,” wrote London.
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