More employers considering wage increases as inflation bites

Roughly one in three employers are considering ad-hoc wage adjustments to combat employee turnover, a study from Mercer Canada says.

“Historically, inflation isn’t the top metric for shaping compensation strategies, but in this high-inflation environment, 34% of organizations are considering ad-hoc, off-cycle wage reviews or adjustments to combat turnover,” a release from Mercer said.

That’s up from 19% of organizations pondering raises in March.

For the study, Mercer surveyed more than 550 organizations across 15 industries. It found employers are facing pressure from workers whose purchasing power has been reduced amid persistently high inflation. The latest consumer price index report showed the annual inflation rate in Canada slowed slightly in August to 7%.

At the same time, the unemployment rate remains near historic lows, maintaining pressure on employers seeking to hire and retain workers.

Mercer found that employers are budgeting 3.4% for merit increases and 3.9% for total compensation increases in 2023.

Central banks worry about a wage-price spiral when workers and businesses expect prices to remain high, leading to higher salaries that further complicate efforts to control inflation.

Bank of Canada Governor Tiff Macklem received criticism from labour unions after urging a Canadian Federation of Independent Business audience in July not to incorporate high inflation into wage negotiations.

A report this month from National Bank Financial Inc. said the wage-price spiral has so far been avoided. Based on Canadian data through July, the average annual wage increase in the major union wage agreements this year remains under 2%, it said.

Mark Burgess

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Mark was the managing editor of Advisor.ca from 2017 to 2024.