The combination of a fiercely competitive job market and the still-rising cost of living will likely lead to more companies boosting employee pay this year, experts say.
RBC economist Claire Fan says given the current labour environment, “wage gains might still accelerate.”
“Elevated demand for workers is firmly bumping up against limited supply and companies will need to do what they can to compete in an extremely competitive environment. And that includes raising wages,” she said.
The latest Canadian jobs report revealed wage gains for permanent workers reached 4.5% in May. When soaring consumer prices are factored in, those gains don’t mean all that much, but it is a departure from the wage stagnation Canada has faced.
Canada’s big banks are some of the companies announcing increases to employee pay in recent months. Canadian Imperial Bank of Commerce is one of the latest ones to do so.
Like its rivals, CIBC is gearing up to raise its base salary by 3% come July. It is targeting workers in the first six levels of the bank, primarily those who regularly interact with clients face-to-face or through technology.
The bank is also increasing its minimum wage from $17 to $20 next month.
“They are the ones that feel the greatest impact from inflation,” CIBC CEO Victor Dodig said in an interview.
In addition to the $3 minimum wage increase, CIBC plans to push that amount to $25 by 2025. Dodig says the bank “plans to stick to that target.”
And he doesn’t believe the pay boosts will have any sort of negative affect on CIBC’s bottom line.
With corporate profits rising by $29 billion in the first quarter of this year, Fan thinks many companies can absorb pay increases.
“Companies should have some buffer to withstand higher wages given extremely elevated consumer demand at the moment which is expected to continue to support business output, at least until the end of year,” she said.
Stephanie Ross, director of labour studies at McMaster University believes wage increases are “inevitable” in the current climate.
“Employers are going to have to shoulder greater risk than they have been if they want to address all the interruptions in services and supply chains we’ve been seeing,” she said. “This is a big departure from the last 40 years, frankly, where many countries’ and companies’ economic growth strategies have been premised on low wages and precarious work.”
She warns, however, that there will be significant negative effects on workers, like layoffs, if the Bank of Canada deflates the economy too much through interest rate hikes.
Wage increases is one of the variables the central bank is watching as it decides how much it is going to raise interest rates next month and beyond.
The Bank of Canada has increased its key interest rate by half a percentage point twice in recent months, bringing it to 1.5% in June, in an effort to tame the country’s out-of-control inflation, which now sits at 6.8%.
With the U.S. Federal Reserve hiking its key interest rate by three quarters of a percentage point last Wednesday there is a sense among some economists that Canada’s central bank could follow suit in July, while others expect another half percentage point.
If inflation manages to come back closer to the Bank of Canada’s 2% target, that’s where Fan expects wage growth to eventually trend to.
“The Bank of Canada, similar to the U.S. Fed, has deemed the current economic environment in excess demand, and that’s true for labour market conditions as well,” Fan said.
“Tighter monetary policy will help soak up that excess demand, and restore some balance into the labour markets such that supply of workers has time to catch up, and wage growth can then be normalized to levels close to the target range.”