Canada's labour market has reached a curious juncture. Employment is shrinking, yet wage growth is accelerating.
Statistics Canada's latest Survey of Employment, Payrolls and Hours (SEPH) – generally considered the statistical agency's most reliable month-to-month measure of the Canadian labour market – showed that non-farm payroll employment slumped by a net 45,300 jobs in March, the biggest monthly decline since August, 2009. It was also the third straight drop, and the fourth in the past five months. Over the past six months, non-farm payrolls have shed nearly 10,000 jobs a month, on average.
But while job growth has evaporated, wage growth has accelerated. In the past six months, the country's year-over-year growth in average weekly earnings (including overtime) has risen from a puny 1.0 per cent to a healthy 3.1 per cent, the strongest pace in 18 months. Weekly earnings were up 0.7 per cent in March alone, the biggest growth spurt in 10 months.
Seeing a sustained slowing trend in hiring and a sustained rising trend in wage growth at the same time is so rare that it defies any obvious interpretation; typically, the two trend in the same direction. That makes sense; when demand for labour is rising, that puts upward pressure on labour costs. In the handful of instances since 2001 (as far back as Statscan's data go on this) when wages were accelerating while jobs weren't, the wage growth has proven hard to sustain.
This would be good reason for monetary policy makers at the Bank of Canada to take the current wage growth with a grain of salt. Upwardly trending wages may not be so inflationary, or at least not sustainably so, if they aren't accompanied by upwardly trending employment.
But perhaps another piece of information could help solve the riddle of these divergent indicators: Average hours worked. If wages were being pushed up due to a need to ramp up workers' hours, including overtime, it could be signalling a growing need for additional hiring.
On the surface, it appears this isn't the case now. Statscan reported that non-farm workers averaged 33 hours a week of work in March, up only slightly from 32.9 in February, and essentially flat over the past six months.
But while hourly-paid employees have actually seen their hours stall, salaried workers have experienced their biggest growth spurt in hours in a decade; March's weekly average of 37.2 is a post-recession high. And when we look at employment levels, there is a similar split – hourly jobs are the ones that have been declining (they hit a 17-month low in March), but salaried employment is up 157,000 since October.
Not surprisingly, then, it is the salaried segment of the labour market that has been responsible for the recent acceleration in wage growth. While average weekly earnings for salaried workers were up nearly 4 per cent in since October, average wages for hourly workers were down 0.8 per cent.
This hourly/salaried divergence does help explain the seeming disconnects in the employment vs. wages trend, and some observers may be encouraged that Canada's best job growth is in its higher-earning segment of the labour market (salaried workers earn, on average, 80 per cent more than hourly workers). But it may also mean the acceleration of wages won't deliver as much pop for the broader economy as it would if hourly workers were along for the ride. Lower-paid workers are generally more likely to spend the bulk of wage increases they receive, thus fuelling consumption growth; higher-paid workers are more likely to save more (they can afford to), providing less juice for economic activity. And that's yet another reason for Canada's central bankers to maintain a cool view on the wage-growth spurt, until there's stronger evidence of a broader trend in labour-market strength to go with it.
David Parkinson