The Underlying Causes of Wage Decline in Canada

If you’re a job seeker in Canada, you’ve likely noticed the latest job offerings from employers have been a little light on the salaries they’re doling out. You’re not crazy nor are you worth less than you were last year, what’s really going on has to do with several economic forces that are causing wage decline in Canada.

According to the Financial Accountability Office of Ontario, workers in technical business services, lower-skill construction, retail, or the wholesale industry have seen their wages be reduced despite the increase of inflation and your experience.

Recently, I was scrolling a Canadian Jobs forum on Reddit to get a read on the streets. It looks like the sentiment is reflected in the security guard profession as seen below.

With Canada’s cost of living at an all time high, it’s leaving many people asking themselves’ “what’s changed, and why does it feel like employers are offering less?” 

Well, to be honest, a lot has, and gone are the days where one man or woman could support a family of four by working at the meat factory. 

But before we get into that, we must look at the variety of factors in Canada’s economy and demography that are contributing to wage fluctuations. Now let’s dive into them together!

Power Dynamics Are Causing Wage Decline in Canada

To understand today’s declining wages in Canada, we must first understand what the job market was like during the pandemic. If we go back to 2020 – 2022 employees had a glorious run of power. Corporations were grasping at straws to hire people amoungst the Great Resignation, labour shortage rhetoric, and government funded stimuli. Infact we even saw remote workers working 2 or 3 jobs at once from their home.

During the unique circumstances of the pandemic, Canadian employees found themselves in a powerful bargaining position, leading to an unusual surge in wage growth. This increase was more than just a bump; it was a steep climb, pushing salaries to new heights, and inadvertently driving up both inflation and overall wage growth. These changes, being so rapid and large, raised concerns about their long-term sustainability.

However, as you can tell by the headline, by 2024, the tables have turned, and the Canadian job market has firmly transitioned into an employer’s market. This shift is starkly evident in the employment statistics of the time, as reported by Statistics Canada. The report highlighted a concerning rise in the unemployment rate and gave no indication of imminent rate cuts, painting a picture of an increasingly challenging job landscape.

The private sector, once a bastion of stable and plentiful employment opportunities, has been particularly hit hard. Jobs have been cut across the board, leaving a much narrower field of full-time opportunities. This contraction in the job market has inevitably tipped the scales in favor of employers. They now find themselves in a position of strength, able to dictate terms in a way that was unthinkable during the height of the pandemic. This power shift has allowed them to offer lower wages, a reflection of the changing dynamics in the Canadian job market.

Steady Increase in Cheap Exploitable Labour 

Another reason for wage decline in Canada is it’s addiction to cheap exploitable labour. All economists know that immigration tends to push down wages. It’s a simple factor of supply (increased workers) and demand (same number of jobs) Sadly, Canada’s extreme increase in temporary migrants, have massively increase the supply of labour while the aforementioned restricted job market has not created any more positions. 

Feeding into this is how Canada doesn’t recognize their home country experience. Many of these people are extremely skilled doctors, architects, and engineers in their home country, but Canada doesn’t recognize their credentials, which relegates them to start their career journey at the bottom, causing a large number of people to be in the market for what we Canadians would think are classic ‘survival jobs’.

The inflow of international students which are working any job to get their chance at a Permanent Residence card and a better life are also driving wage decline in Canada for those jobs. But, it is not their fault. New immigrants are forced to take anything for a job and it also means that employers can easily low ball them on their wages due to them not being able to say no in their precarious position.

A relatively recent phenomenon stemming from this is the increase in immigrants actually paying to secure a job in Canada that can kickstart their pathway to permanent residency. Or, alternatively, to take any job even if the boss is underpaying as reported by this reddit user here:

Canada’s Lack of Business Competition and Our Oligopolies

It’s important to consider that it’s not always external immigrant that are causing wage decline in Canada. In fact, there’s a more domestic culprit behind that as well. To find it, we just have to look at how the concentration of market power in Canada lies within a few hands.

The consolidation of many large industries in Canada impacts the nation’s business competition, innovation, and wage growth. Canadian sectors like telecoms, banking, and utilities are dominated by a handful of corporations, leading to an oligopolistic environment. This leads to reduced competition and innovation, as dominant firms have less motivation to improve their products or services, thus stunting industry advancements and economic growth.

The limited competition from oligopolies also creates high barriers to entry for potential competitors, which can dampen overall economic activity and slow down industry advancements. This lack of competition can also have implications on wages. In a market with a few dominant players, there’s often less incentive for these companies to offer competitive wages, especially if they can coordinate their wage policies.

Moreover, these large corporations can exert significant influence over government policies and regulations, which may entrench their market positions and limit opportunities for smaller businesses. This scenario not only stifles innovation and entrepreneurship but can also contribute to income inequality as wealth and resources become increasingly concentrated among a small elite.

Policymakers and regulators play a crucial role in monitoring the extent of market dominance in key sectors and taking measures to promote competition and consumer welfare. Balancing growth promotion and preventing excessive market concentration is essential for a dynamic and thriving economy that benefits all Canadians​ (Policy Options)​​ (AlphaBridge)​.

Lower Productivity Levels

The Bank of Canada has raised alarms about Canada’s dwindling productivity, a critical economic measure. Productivity, essentially the output relative to input in work hours, has seen a marked decline, particularly in the last decade. As Carolyn Rogers, the Senior Deputy Governor, pointed out, Canada’s productivity has slipped from 88% of the U.S. value per hour in 1984 to a mere 71% in 2022.

This diminishing productivity signals a concerning trend: a slowdown in innovation, essential for attracting capital. Without robust capital investment, the country faces a risk of fewer high-value jobs and economic stagnation. Rogers urges a need for increased competition and investment in sectors that drive productivity and efficiency, highlighting this as a critical emergency for Canada’s economic health and growth.

In the context of Canada’s declining productivity, as highlighted by the Bank of Canada, there’s a direct impact on wages. Lower productivity implies that businesses are generating less value for each hour of work, which often leads to a squeeze on their profitability.

This squeeze can result in companies being less willing or able to increase wages, leading to stagnation or even reduction in real wages. Without the lure of innovative, high-value sectors that can drive capital investment, the economy may not generate the high-paying jobs needed for wage growth, exacerbating the situation. The correlation between productivity and wages is a key aspect of a healthy, growing economy.

Finding Places Where Your Money Goes Further

As we journey through the various factors contributing to wage suppression in Canada, we’ve uncovered a complex web of influences. From shifting power dynamics in the post-pandemic employers’ market to the increase in exploitable labor through immigration, and through the strong grip of oligopolies stifling competition and innovation, each element plays a role in the current downward wage pressure.

However, don’t feel like you have to give up yet. Many Canadians have been taking their innovative might where it’s appreciated and you can too. Although scary at first, moving to Spain was the best decision I’ve ever made. And, on top of that, it supports many innovative startups in it’s borders which my expat friends have taken advantage of to emigrate here.

Now If you’re looking to escape Canada for a while, and start up shop in a new land we can help you. Consider checking out our Canadian Exit Guide below to understand your options for exiting Canada but keeping your finances in check.

Eitherway, Canada’s wage decline sheds a narrative that calls for proactive measures from policymakers and businesses alike, to foster a more dynamic and equitable economic future. As Canadians navigate this landscape, the path forward lies in addressing these underlying issues, ensuring a robust and thriving economy for all.