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Phil Gintoli, owner of Ponesse Foods in Toronto’s St. Lawrence Market, chats with a customer on Jan 19.Fred Lum/the Globe and Mail

Around two-thirds of Canadians have seen inflation outpace their wage gains over the pandemic, translating into an effective pay cut for millions of workers, a new report finds.

Over the two years ending in February, average wages rose by 2.7 per cent a year compared with an annual inflation increase of 3.4 per cent, according to an analysis from the Canadian Centre for Policy Alternatives (CCPA). Inflation-adjusted wage growth was negative in many parts of the labour market, including industries tied to the public sector – such as education and health care – and for the average worker who hasn’t switched jobs during the pandemic.

Canada’s inflation rate hit a three-decade high of 5.7 per cent in February, and several analysts say it’s poised to climb further in the months ahead, partly because the Russia-Ukraine war has led to higher commodity prices. Financial analysts expect the Bank of Canada to raise its policy rate by half a percentage point on Wednesday in its effort to douse inflation. The bank hasn’t raised rates by that much at one time since 2000.

Alongside the inflationary surge, employers have gone on a hiring spree, sending Canada’s unemployment rate to a record low of 5.3 per cent in March. But even with a tight labour market and companies’ insistence that workers are difficult to come by, wage growth has generally been meagre over the pandemic.

“We’re just not seeing wage gains anywhere near the rate of inflation,” said David Macdonald, senior economist at the CCPA and the report’s author. “It may be that workers have yet to catch up to the fact that inflation is high, and that they should start asking for higher wage gains on a year-to-year basis.”

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Wage comparisons can be a complicated exercise. For instance, average pay jumped early in the pandemic – but only because layoffs affected low-wage employees disproportionately. To account for distortions, the CCPA weighted employment by industry, occupation and tenure at prepandemic levels.

The left-leaning think tank found relative winners and losers. Wage growth exceeded inflation in such industries as information, culture and recreation; non-durable manufacturing; and real estate. While workers in culture and recreation have struggled amid COVID-19, those in information – such as IT technicians – have thrived.

The report said that workers with shorter tenures have pocketed larger wage gains, a sign of the upside to switching jobs in a tight market. (Employees with shorter tenures do, however, earn less on average.)

Despite those potential benefits, the job-switching rate in Canada was 0.7 per cent in March – roughly the same as it was before the pandemic and one of many indications that a “Great Resignation” hasn’t taken place.

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Wage growth has also been sluggish in health care and education, categories in which pay is often governed by collective bargaining agreements, and after some provincial efforts to freeze or cap wages in the public sector.

“Now is potentially the time to start to bargain up those wages,” Mr. Macdonald said.

Wage growth is showing signs of accelerating as tight hiring conditions persist. The average hourly wage rose 3.4 per cent in March from a year earlier, up from 3.1 per cent in February, according to Statistics Canada.

“At this point, employers are probably interested in retaining their employees because it’d be hard to find new ones,” Mr. Macdonald said. “And that puts more power into the hands of workers, particularly workers with more tenure.”

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