Douglas Todd: Why Canadian wages never seem to go up

Good summary of concerns regarding low GDP per capita growth:
There is a startling admission buried in Chart #28 of the budget released this month by Canada’s Liberal government.
The chart in Finance Minister Chrystia Freeland’s budget quietly acknowledges a forecast by the OECD, a club of mostly wealthy nations, that Canada will likely come in dead last in the next four decades in regard to GDP growth per capita.The downplayed chart, one tiny aspect of the 304-page document, serves as a warning that individual Canadians, compared to the citizens of 39 other economically advanced countries, will in the next decades likely suffer the lowest real growth in their wages.

Freeland puts the blame for tepid wages almost entirely on Canadian businesses, which she claims “have not invested at the same rate as their U.S. counterparts.” The finance minister then boasts that Ottawa’s policies on housing and immigration will “strengthen the middle class and leave no one behind.”

But more than a few people suggest they are doing the opposite. Why, when the country’s GDP is expanding, have individual Canadians not been getting ahead? Why is their wage growth projected to lag so far behind citizens of other nations? And why are millennials taking the brunt of it?

The OECD predicts Canadians will experience the lowest growth in real wages out of 40 advanced economies. A downplayed version of this chart appeared in the Liberal budget. (Source: OECD / B.C. Business Council)
The OECD predicts Canadians will experience the lowest growth in real wages out of 40 advanced economies. A downplayed version of this chart appeared in the Liberal budget. (Source: OECD / B.C. Business Council)

David Williams, policy analyst for the Business Council of B.C., is helping ring the national alarm bells.

“Past generations of young Canadians entering the workforce could look forward to favourable tailwinds lifting real incomes during their working lives. That’s no longer the case,” he said.

“If the OECD’s long-range projections prove correct, young people entering the workforce today will not feel much of a tailwind at all. Rather, they face a long period of stagnating average real incomes that will last most of their working lives.”

Ottawa’s economic strategy is based on several “shaky pillars,” which include using “record immigration levels to turbo-charge population growth and housing demand in major cities,” Williams said.

“The political class appears to have lost interest in efforts to raise workers’ productivity and real wage growth through higher business investment per worker.”

Toronto-based analyst Stephen Punwasi says Canada is on its way to becoming the “next Greece,” referring to the way Greeks’ personal incomes tanked more than almost anywhere else after 2009 because of the housing-mortgage-ignited recession.

“Canada has embraced cheap growth by way of residential investment and debt,” Punwasi says. Canada has been putting too much emphasis on home construction, he said, as well as on printing money at a faster rate than almost any other country.

Nowhere in Canada, or even in much of the world, does the economy rely on housing as much as it does in B.C., which has a lower GDP per capita than Alberta and Saskatchewan. Almost 30 per cent of B.C.’s overall economy is tied up in real estate and construction. But the housing sector struggles to grow the economy, or wages, like other industries, which are more able to innovate and export.

The Liberals’ commitment to record immigration targets focuses mostly “on the benefits immigrants provide to older Canadians,” Punwasi said, including in the form of “strong housing demand and tax revenues.”But he cautions that Ottawa’s policies often exploit newcomers, who end up coming to the country unaware of flat wages, especially for the young adults who make up the bulk of immigrants, foreign students and temporary workers.

Donald Wright, the freshly retired head of B.C.’s provincial civil service, notes discouragingly that six out of 10 Canadians recently toll Nanos pollsters they expect their standard of living to worsen.

“Isn’t it time we took Canadians standard of living seriously?” Wright asks in presentations to groups of Canadian Senators and to the Canadian Association of Business Economists.

In addition to Wright’s concern about Ottawa’s inability to promote technological advancement and productivity, he joins Punwasi in worrying that policymakers are over-relying on population growth and cheap labour. It’s not helping the middle classes, he says.

“It’s time for some nuance on immigration policy,” says Wright, who was B.C. Premier John Horgan’s deputy minister. While remaining pro-immigration, Wright hopes for a more thoughtful debate about immigration in Canada, otherwise anti-immigration populists could come to dominate, as they have in other countries.

As it is, Prime Minister Justin Trudeau’s economic plan relies on increasingly record-high immigration counts — of 432,000 in 2022, 447,000 in 2023, and 451,000 in 2024. That compares to 250,000 when the Liberals were first elected.These targets, far higher than those in the U.S. or almost anywhere else, will impact economic equity in Canada, Wright says. “The evidence is very strong that the demographic group most adversely affected by higher immigration is the previous cohort of immigrants.”

That’s in part because the largest group of immigrants is disproportionately those between 25 and 40 years old, which is the same cohort as the already large baby-boom echo, also known as millennials.

An increase in immigration at this time amplifies the challenges millennials are having, particularly in the housing market, Wright says. “So, even if there is a valid argument for raising immigration levels, this is being done approximately 10 years prematurely.”

What makes it all the more unsettling is that the corporate-backed organizations pushing Ottawa to hike immigration targets, such as The Century Initiative and the Conference Board of Canada, have acknowledged that higher immigration leads to lower GDP per capita.

“So why,” Wright asks, “has it become the core of the federal government’s economic ‘strategy’?”

Source: Douglas Todd: Why Canadian wages never seem to go up

About Andrew
Andrew blogs and tweets public policy issues, particularly the relationship between the political and bureaucratic levels, citizenship and multiculturalism. His latest book, Policy Arrogance or Innocent Bias, recounts his experience as a senior public servant in this area.

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