By Guio Jacinto
The recent wage data provided by Statistics Canada, from their monthly Labour Force Survey (LFS), is encouraging. The data for March 2018 confirms the trend we began to see emerge in late 2017. After stagnating for much of 2016 and 2017, wage growth appears to be finally accelerating. For the sixth month in a row, wages have grown over 2%, while in the previous three months they have grown over 3%.
However, it is important not to overstate the acceleration evident in the recent data. While wage growth is apparent, the survey tends to overstate this acceleration. This is largely due to the Total Employees, All Occupations (TEAO) category which contains both management and non-management employees. When we exclude management from the data, we obtain a much more sober picture of wage growth. Even though there is clear evidence of wage growth for non-management employees, it is slower than the TEAO figure and much slower than the growth of management wages. Charts I and II below provide a more accurate picture of the recent wage data.
For March 2018, the TEAO average hourly wage had increased by 3.25% on a year-over-year basis to $26.97. When we remove management from the calculation, the year-over-year figure declines to a 2.96% increase. In wage terms, the increase for Non-Management Occupations (NMO) places the average wage at $25.72. While the difference between the two categories and accompanying wage rates may be seen as insignificant, this difference is created by a very small minority of the working population.
Management, as a group within Total Employees, represents only 6-7% of the working population, yet their wages are still able to considerably skew the wage of the average worker, contributing approximately a 5% difference between the categories (TEAO and NMO). The category of NMO provides a more accurate picture of wage growth of the average worker than does the Total Employees, All Occupations category.
Total employees vs non-management employees
The (late) 2017 wage trend is clearly in the direction of accelerating wage growth for both TEAO and NMO. However, when we remove management from the calculation a more accurate picture of the growth of the wages of the average worker emerges. While wage growth was largely flat for both TEAO and NMO – on a year-over-year basis – this was particularly the case for the latter. For NMO, wages only really began to accelerate in the latter part of 2017, in November, reaching slightly over 2% on a year-over-year basis which has so far continued in the early part of 2018. This is in contrast to the TEAO data that shows a consistent increase of over 2% year-over-year growth beginning in September and reaching over 3% for the first three months of 2018 (3.31% 3.10% and 3.25%). As of yet, NMO wage growth, on a year-over-year basis, has not managed to hit over 3%, although it came close in the previous month, reaching its highest year-over-year of 2.96% in March.
If we look at wage growth in the latter part of 2017, there is much more parity in terms of acceleration between the two figures although NMO wages still show slower growth. From August to December, the period in which all of the nominal wage growth for workers in 2017 is concentrated, the TEAO data expresses a 2.9% increase, while for NMO it is slightly below at 2.8%. Furthermore, earlier in the year, from January to May, wages for NMO did not increase over 1% on a year-over-year basis and actually registered a decline if measured over that continuous period.
Speaking in real wage terms, as Chart II demonstrates, it was only in the latter part of the year, beginning in September 2017 (but only really taking off in November) that real wage growth for NMO accelerated and began to consistently trend above inflation. This is in contrast to the TEAO data, which expresses the trend much earlier. If we look at the data on a natural year basis (Jan.-Dec.), NMO wages grew by 2.07%, while inflation increased by 2% – an increase of 0.07% of real wages for the average worker – an insignificant increase in workers’ purchasing power. Looking at the TEAO data (2.73%) for the same time period, real wages would appear to have grown by 0.73%.
Mo’ money for management
Although management wage growth experienced a slowdown in early 2017 as compared to 2016, this growth was still significantly higher than NMO (Chart I). For the first half of the year, when economic growth was at its peak, management wages grew by 2.35%, compared to NMO which experienced negative wage growth. For management, things only got better as the year progressed. The year-over-year figures for management surged in late 2017 and into early 2018, reaching a 4.89% year-over-year for March. Looking at the data for the natural year of 2017 alone, management wages grew by 5.88% – significantly higher than NMO wage growth which clocked in at just 2.07% for the same period. Expressed in wage proportion terms, 2017 looks something like this: in January of 2017, the average hourly wage of NMO represented roughly 60% of the management hourly wage. By December 2017, the average hourly wage of a NMO had declined by 2%, representing only 58% of the average hourly wage of management.
Some occupations within management saw their wages explode in 2017 and have continued to do so in the early part of 2018. This is particularly the case with Senior Management (SM). In November and December of 2017, SM wage growth on a year-over-year basis increased 11.32% and 27.15%. This growth has continued in early 2018, with year-over-year increases of 18.10%, 19.74% and 19.84% for the first three months of the year. If we take 2017 alone, SM wages grew by 19.89%; in wage terms that equals a $9.20 raise, bringing the SM wage to $55.45/hr.
In comparison, the average worker received a $0.52 raise. When we express these changes in the wage proportion terms of the average worker, the numbers are absolutely dismal. In January of 2017, the NMO hourly wage represented roughly 53.80% of the hourly wage of SM. By December of 2017, NMO hourly wage had declined to just 45.80% of SM hourly wage, a fall of 8%. While the average worker saw their nominal wage increase (the money price of their wage), their relative wages declined – relative to senior management – in 2017, even amidst strong economic growth.
While 2017 did see some wage growth for NMO, this was at best, mild. If the use of car metaphors is permitted, NMO wage growth was more like a Ford Ranger taking 10 seconds to hit 0-60 mph, while management was more like a BMW228 taking five seconds to do the same. By the end of 2017, while the average worker could claim some nominal wage gains, their real wages had largely stagnated while their relative wages had declined in comparison to their bosses’.
In other words, it appears that much of the prosperity that 2017 heralded for Canadians was concentrated in the top 2% of occupations while the rest of the working population sat in their Ford Ranger watching that BMW speed by.
Chart III graphs the wage growth of blue collar workers for 2016-2018. Similar to the trend of NMO, blue collar workers only began to see their wages grow in the later part of 2017 and beginning of 2018. This long-awaited wage growth has only emerged after a largely stagnant 2016 and most of 2017. In fact, if the natural year of 2017 is measured, blue collar workers’ wages only, increased by 0.74%, with most of this wage growth, like NMO, concentrated in the latter part of the year. If we extend our analysis to early 2018, the picture becomes a little brighter.
From August 2017 to March 2018, blue collar wages grew 4.29%. Although the wage rate of blue collar workers demonstrates quite dramatic fluctuations – sustained periods of wage growth and then decline largely due to the nature of the industries involved which are often characterized by seasonal high/low times (natural resources, construction), production slowdowns and shutdowns/retooling – a two-year time period analysis of the wage growth of blue collar workers demonstrates largely stagnant wage growth. From March 2016 to March 2018, blue collar wages have grown by just 3.6%, or 1.8% each year.
After stagnating for much of 2016 and most of 2017, sales/service occupation wage growth – excluding management/supervisory occupations – surged in the tail end of 2017, reaching a year-over-year highs of 5.1.8 % in January, 5.22% in February and 5.62% in March of 2018. Measured in terms of the natural year of 2017, those workers in sales/service occupations saw a 3.23% increase to their hourly wage. While the month-to-month increase – 1.9% – in December 2017 to January 2018 jump can, in large part, be attributed to the minimum wage increase in Ontario and its spillover effects, wage growth in sales and service occupations had begun demonstrating stronger month-to-month growth beginning in July – from January to June, wages had grown only 0.77%, while from July to December, sales and service wages grew by 2.1% – and strong year-over-year growth beginning in September of 2017. This suggests, a largely secular bidding up of wages arising from a tightening labour market, following the tendency of NMO.
The most interesting data comes from an analysis of those occupations that compose the bottom 40% and 20% of occupations in the labour market. While for the average worker wage growth began very late and was relatively mild, when we take the bottom 40% and 20%, the wage growth picture demonstrates the opposite trend. Chart VI demonstrates that both NOC 4-7 (bottom 40%) and NOC 5-7 (bottom 20%) demonstrated much stronger wage growth which came much earlier in the year than NMO. Compared to the zero wage growth for the first six months of the year of NMO, the bottom 20% of those in the labour market saw their wages increase, albeit mildly, by 1.19%. While still relatively low, if analyzed on a year-over-year basis, we can see that both NOC 4-7 and especially NOC 5-7, begin to express much stronger year-over-year growth early on in 2017.
In fact, the bottom 20% see increases of over 2% year-over-year for 10 straight months beginning in March and over 3% five times, while the bottom 40% begin to show signs of stronger growth in May, consistently hovering around or over 2% and reaching 3% and 4% in the latter part of the year. In late 2017, as the wages of the average worker were finally growing consistently over 2% on a year-over-year basis, those in the bottom 40% and 20%, were witnessing increases in the range of well over 3% and 4%.
Measured in terms of the natural year, those workers in the bottom 20% saw a wage increase of 3.76%, while those in the bottom 40% saw a 3.73% increase compared to the 2.07% of NMO. This wage growth has continued in the first three months of 2018 with year-over-year increases in the 4-5% rnage. Moreover, since December 2017, those at the bottom 40% and 20% have seen their wages accelerate faster than their fellow NMO, with increases of 1.33% and 2.03% respectively, in comparison to 1.26% of NMO. For 2017, in contrast to the average worker, those at the bottom of the labour market, and particularly those at the bottom 20% saw their wages bid up largely in line with economic growth, declining unemployment and tightening labour markets.
In this sense, we could say that at the very least, those at the bottom of the labour market did manage to benefit a little bit more from Canada’s better-than-average 2017 economic performance than some of their fellow NMO workers. This is, of course, positive news. After all, these are workers making a relatively low hourly wage and therefore in much more need of getting a wage boost.
This was first published on USW.ca