Wage growth weakness worse than previously reported, TD says

(May 5, 2005) Earlier this year, TD Economics reported that the after-tax income of the average Canadian rose just 3.6% over the past 15 years. But an update of that study suggests the wage growth picture looks even worse, when other factors are taken into account.

TD economist Eric Lascelles added education, gender and age to the equation and found that median hourly wages in Canada grew a paltry 1.1% between 1981 and 2004.

“There is good reason to think that the overall growth in wages has been biased upwards by shifts in education and age, and biased downwards by a change in the ratio of men to women in the workforce,” says Lascelles. But controlling for those factors, the result is an even more pessimistic picture of Canadian wage growth than past estimations.

Gender crunching

The real hourly wage of male workers declined by more than 2% between 1981 and 2004, while women’s wages rose 8.5% over the same period. Still, women’s wages remain lower on an absolute basis. There are a number of reasons for that, TD says, including disparate work experience, family duties and a preference among women for part-time work. But a number of the wage factors are difficult to quantify, TD concedes, suggesting that Canadians should expect a further narrowing of the wage gap in the future.

An aging population

Taking the gender-based data a step further and adding in age, TD found that men’s hourly wages have fallen a dramatic 10% over 15 years, while women’s wages have risen about 4%. “This is because Canada’s population has aged over the time span in question,” Lascelles explains. The average Canadian worker was 34 in 1981 and 39 in 2004. Older workers tend to be more experienced and thus command higher salaries, he adds, and as a result, the effects of an aging population bias the overall rate of growth upward.

The learning curve

Another notable trend over the past couple of decades involves higher education. In 1981, just 16% of Canadians had a university degree — that stat jumped to nearly 26% by 2001 and is likely even higher today. “This means that part of the reason personal income rose at all over the past few decades was that more people were graduating with university degrees and as a result, getting higher paid jobs.”

But there’s a flipside to the educational story. The real median hourly wage for university-educated men of a fixed age fell nearly 6% between 1981 and 2004, and about 4% for women. “Astonishingly, for all levels of education and for both sexes, workers earned less in 2004 than in 1981,” Lascelles says.

Still, that doesn’t mean the average university-educated woman who took a job in 1981 is likely to be earning less money today, after 23 years in the workforce. Workers generally see their wages rise over time due to experience and seniority. “But if that same worker were to take a time travel machine from 1981 to 2004, she could expect to receive a lower hourly wage today.”

Lascelles’ rather pessimistic report concludes that as dismal as overall wage growth has been over the past 20 years, the situation is even worse when age, education and gender are added to the mix. “Don’t get us wrong — having a better-educated workforce with more experienced workers, more women and a narrower male-female earning gap are all achievements to be applauded. But regardless of the reasons, these are the only factors that prevented an outright and substantial decline in hourly wages between 1981 and 2004.”

Filed by Doug Watt, Advisor.ca, doug.watt@advisor.rogers.com