Diana Carney and Claude Dumulon-Lauzière

Opinion: Productivity and pay – why Canadians are (somewhat) better off

February 15, 2013

This opinion piece appeared on the iPolitics site on February 15, 2013.

 

Comparing ourselves with the United States is a national pastime in Canada. Sometimes the comparison makes us look good (health care, public education).

Sometimes it makes us look bad (consumer prices, productivity). Sometimes it reveals an altogether more nuanced story. Sadly, we often miss the nuance.

A month ago, the New York Times published a piece, titled Our Economic Pickle, on the conundrum represented by increasing productivity and declining real wages. Workers are producing more, yet taking home less of the overall pie: wages now represent only 43.5 per cent of GDP, down from over 50 per cent of GDP in the 1970s. Corporate profits are at an all-time high while wages and median household income have both fallen.

Within that 43.5 per cent, it is the top earners who are doing best — a familiar story from the broader income inequality debate. In 1979 the top one per cent took home 7.3 per cent of total wages. By 2010 this had risen to 12.9 per cent. This makes sense to those who have been following trends in income polarization: the ultra-rich are increasingly self-made and they earn wages, in large amounts, rather than rely on inheritances. The fact that their share of the pie has gone up by 50 per cent is no surprise.

At the opposite end of the spectrum, things are looking grim for U.S. workers: labour productivity has increased by 80 per cent since 1973 but median hourly compensation has gone up by only 10 per cent. Real GDP has increased by 18 per cent but median household income has fallen by 12 per cent since 2000. ‘Shared prosperity’, as the basis for societal cohesion, appears to have fallen by the wayside.

Is the same true in Canada? Somewhat. One of the biggest problems in this country is labour productivity: this rose by only about 50 per cent between 1980 and 2012 — about 30 per cent less than in the U.S. Average (mean) real hourly wages certainly did not keep up. They grew by 4 per cent between 1981 and 1998, before advancing at a more rapid rate between 1998 to 2011 for a cumulative 14 per cent increase. While by no means perfect, this is significantly better for workers, when lower labour productivity increases are factored in, than in the U.S.

This Canadian ‘advantage’ is reflected in the aggregate figures. In the U.S., the share of wages, salaries and supplementary labor income to GDP has fallen over time — from a high of nearly 54 per cent in the late 1960s to less than 44 per cent now. In Canada it has remained stable, close to 50 per cent of GDP (51 per cent in 1961 and up to 52 per cent in 2011). And in Canada we have minimum wage rates that substantially exceed those in the U.S.

In this week’s State of the Union address, President Barack Obama proposed raising the federal minimum wage in the U.S. from $7.25/hour to $9/hour. Few feel confident that he will be able to achieve this. Meanwhile, hourly minimum wages in Canada — which are set by provinces — vary from $9.50 in Saskatchewan to $11 in Nunavut (Ontario currently stands at $10.25, Quebec at $9.90 and Alberta at $9.75). Goods certainly cost more here — as was confirmed by a recent Senate report on the Canada/U.S. price gap — but at least those at the bottom of the wage scale take more home per hour.

One reason for this may be the relative rates of unionization in the two countries. Unions now represent around 11 per cent of American workers (though less than 7 per cent in the private sector) as opposed to 28 per cent in the 1960s. In Canada the unionization rate is still above 30 per cent, close to the U.S. mid-1950s peak of 35 per cent.

What does this tell us? That our problems are not as severe as those in the U.S.? Yes, at some level that is certainly true. But societies should judge themselves by what they themselves can bear and not by comparison with others. As is the case in the health care debate, if we stop thinking about the U.S., things do not look that great in Canada.

Collapse is by no means imminent, but we do need to do some soul-searching on how we want to move forward and what value we place on the factors that distinguish us from the U.S.

Related Content

Research: Are we ready for universal childcare in Canada?

Is Canada ready for a universal childcare system? If so, what does ‘universal’ look like? Canada’s current childcare system is a fragmented and patchwork landscape that has been recognized internationally as a serious human development concern. Set against the backdrop of increased media and policy attention to social mobility, Canada 2020′s Analytical Commentary No. 6 focuses on the relationship between income inequality, equality of opportunity and universal childcare.

Summer Reading: Reports on equality, mobility, education and more

With Parliament Hill adjourned for the summer, Ottawa is a much quieter place, giving us time to catch up on a number of fantastic reports that have been published by organizations in our network. We have scoured the web and come back with six must-read reports to add to your summer reading list. Featuring work from the Brookings Institution, the Center for American Progress, the International Institute for Sustainable Development and more.

Event Summary: Panelists get to grips with the Canadian dream

Over 350 people came out to the Château Laurier Hotel on February 26 where they were treated to a lively, progressive and sometimes contentious debate about the various options for governmental action to help ensure continued economic mobility in Canada.

Opinion: Productivity and pay – why Canadians are (somewhat) better off

Comparing ourselves with the United States is a national pastime in Canada. Sometimes the comparison makes us look good (health care, public education). Sometimes it makes us look bad (consumer prices, productivity). Sometimes it reveals an altogether more nuanced story. Sadly, we often miss the nuance.

Opinion: Inequality – defining the defining issue of our time

Diana Carney analyses the facts, figures and sentiment behind our growing concern with inequality. The story is not as simple as one might think.

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>

Site by Carbure
css.php