Canadian incomes grew at a real rate of 10.8 per cent between 2005 and 2015, modest gains that economists say were held back by the financial crisis, recession and more recent collapse in oil prices.
According to a Statistics Canada release based on census data, the Canadian median household income increased from the inflation-adjusted equivalent of $63,457 in 2005 to $70,336 in 2015. That’s real wage growth of a little more than one per cent per year.
“That’s not a booming pace of income growth,” said Craig Alexander, senior vice president and chief economist at the Conference Board of Canada.
The 2008 financial crisis and subsequent recession were mostly to blame, Alexander said. “If we hadn’t had the recession, family income would be up significantly more.”
Then, in 2014, the price of oil dropped dramatically, causing serious damage to the Canadian economy overall and Alberta in particular. Statistics Canada points out these income figures only capture the beginning of that economic shock.
The devastation of the country’s manufacturing sector over the decade — during which employment in the sector dropped 22 per cent — also appears to have weighed significantly on wages.
Income growth rate
Ontario and Quebec, two provinces with significant manufacturing industries, experienced the slowest rates of income growth at 3.8 and 8.9 per cent respectively. Nunavut and Saskatchewan saw incomes rise the fastest at 36.7 and 36.5 per cent, thanks to investments in the resource sector.
Sal Guatieri, senior economist at BMO Capital Markets, said he was surprised to see B.C.’s income growth rate was only a little better than Canada’s overall at 12.2 per cent, despite a strong recovery since the recession.
Guatieri said Canada’s sluggish income growth rate combined with low interest rates have led to sky-high household debt levels. “Households take on more debt simply to compensate for the lack of income growth,” he said.
Canadians who want to work more hours to pay off those credit card bills have been finding it challenging.
At 6.2 per cent, Canada’s unemployment rate is currently the lowest it’s been in nine years, but workers haven’t seen wages increase as quickly as employment.
Benjamin Tal, deputy chief economist with CIBC World Markets, said the jobs that have been created since the financial crisis have been disproportionately poorly paid and part-time.
Meanwhile, wage gains have disproportionately gone to highly-skilled workers and top earners, he said.
Shrinking middle class
“The shrinking middle class is not a myth. It’s not a slogan. It’s a reality. It’s happening everywhere,” Tal said. “I don’t think this is something that will go away.”
The Conference Board of Canada’s Alexander said Canada’s aging population is also posing a challenge to the economy. When workers retire, they not only exit the labour force, but they tend to spend less money.
Over the next decade, he sees incomes improving in Ontario, with resource-rich provinces like Alberta experiencing smaller increases.
He pointed to increases in the minimum wage in Ontario and Alberta, government transfers such as the expanded Canada child benefit and strong job growth as factors that should boost real income over the next decade.
“We won’t be getting the income boom that happened during the commodity supercycle,” Alexander said. “However, job growth is strong. The unemployment rate is falling. As the labour market tightens, wage growth should pick up.”