Quebec has low unemployment, but wages are rising at a snail's pace

Despite record record low unemployment, wage growth remains sluggish in Quebec, experts say.

And, according to one metric, the earnings gap between Quebec and Ontario started to grow again in 2018.

“There is growth, but not as much as expected,” said Mia Homsy, the director of the Institut du Québec, a public policy think tank created through a partnership between HEC Montréal and the Conference Board of Canada. “We would have thought that, with the pressure now on the labour market, wage growth would have been stronger.”

In December, average weekly earnings in Quebec were $946 per capita, an increase of 2.5 per cent from December 2017, according to Statistics Canada.

Inflation in the province was 1.7 per cent in 2018, suggesting real average weekly earnings grew by almost one per cent.

Yet, at the same time, there are more than 100,000 unfilled positions in the province and unemployment is around 5.3 per cent.

Damba Lkhagvasuren an economics professor at Concordia University who studies labour market market dynamics, said he expects the province’s low unemployment to start putting upward pressure on wages, but it could take several years.

“Labour wages are usually very, what we call sticky,” he said. “It’s a very slow moving process.”

There are two factors at play, he said.

When an economy starts doing better, employers hire people who were previously not employed, because some of those workers are less skilled or have been unemployed for some time, he said. That can put downward pressure on average wages.

But, with a smaller pool of people to hire from, companies have to start offering higher wages to attract workers, Lkhagvasuren said.

François Legault’s Coalition Avenir Québec was elected in October on a promise to create more jobs that pay over $50,000 a year and to close the gap between earnings in Ontario and Quebec.

In December, the most recent month for which statistics were available, average weekly earnings in Quebec were nine per cent lower than in Ontario. In December 2015, that gap was more than 12 per cent.

But there are other factors — Quebecers work fewer hours in general than people in Ontario, and taxes are higher here, but the cost of living is lower.

The difference in average hourly wage is smaller than the difference in average weekly earnings. In 2016, the average hourly wage in Quebec was 7.6 per cent lower than in Ontario. That gap shrunk to 5.8 per cent in 2017. However, it rose to 7.35 per cent in 2018, according to data from Institut de la statistique du Québec, a provincial agency.

That may be related to an increase in the minimum wage in Ontario, Homsy said.

But the higher tax rates in Quebec may also be having an effect on wages in the province, Lkhagvasuren said, because the tax system is highly progressive — there’s less incentive for people to invest in increasing their skills to earn higher wages.

Some above average income earners are also leaving, he said.

“When taxes are high, then high skill people usually out-migrate to regions where there’s less progressive tax,” he said.

On average, people who left the province for other parts of Canada earned 17 per cent more before leaving Quebec than people who stayed in the province, Lkhagvasuren said.

There’s also a productivity gap between Ontario and Quebec, Homsy said.

In other words, the gross domestic product generated per worker is higher in Ontario.

That difference is around 16 per cent in the manufacturing sector and 15 per cent in the services sector, according to the Institut du Québec.

“The more productive your labour market is and your economy is, the stronger the wage growth, because you have more money to invest, to pay your employees,” Homsy said. “So that could also maintain the gap.”

Homsy said the provincial government needs to take a new approach — right now the primary criteria it uses to decide whether to support a business is how many jobs will be created, but in the current labour market situation, that just moves jobs from one industry to another and runs the risk of moving jobs from local businesses to multinationals.

“You have to rethink all this, for example, how would you promote investment in technology, continuing training, skills development?” she said. “You have adjust the criteria you’ll be analyzing companies on, so they can adjust what they’re doing and not just trying to prove they’re going to create jobs.”

Related

• Montreal unemployment rate drops below Toronto's (again) in January
• Quebec still leads the country in unfilled jobs, report finds
• Quebec should focus less on trying to create jobs: think tank study

from Montreal Gazette https://montrealgazette.com/business/quebec-has-low-unemployment-but-wages-are-rising-at-a-snails-pace
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