By Vanmala Subramaniam* – August 2022
At an event hosted by the Canadian Federation of Independent Business in July, Mr. Macklem said that companies should not expect inflation to remain high. “Don’t build that into longer term contracts. Don’t build that into wage contracts. It is going to take some time, but you can be confident that inflation will come down.”
This comment has sparked pushback from union leaders, who are trying to ensure the wages of their members keep up with the first inflation surge in a generation, and are growing increasingly assertive in their bargaining activity.
“It was just extremely disappointing to see the Governor of the Bank of Canada telling businesses to essentially hold the line on increasing wages,” Lana Payne, Unifor’s newly elected leader, said in an interview with The Globe and Mail. “We have an opportunity, right now, for workers to make gains. So it’s a shame that in the middle of all this, you see Mr. Macklem go out there and make those comments.”
With consumer price inflation near a four-decade high, the Bank of Canada’s principal concern is getting prices under control and inflation back down to its 2-per-cent target. The rate of inflation declined slightly last month, and economists expect it to trend downward in the coming quarters. But the Bank of Canada remains wary of a wage-price spiral: a situation where both businesses and workers expect permanently higher inflation, and so respectively push up prices and demand higher wages in a self-reinforcing cycle.
“Ending such a cycle takes much higher interest rates to bring inflation back down, and the economy slows much more, resulting in potentially widespread job losses,” Bank of Canada spokesperson Paul Badertscher wrote in an e-mail.
“We agree that it is not the Bank of Canada’s role to provide advice to companies on their business decisions. But it is our role to provide Canadian businesses and households with the outlook for inflation,” he said.
Labour leaders and left-leaning economists argue that the central bank is overemphasizing the risk of a wage-price spiral. It was a phenomenon that last happened in the 1970s and early 1980s when union membership was much higher than it is today and contracts were more likely to be indexed to inflation. Moreover, in suggesting that businesses should not build higher inflation into their wage contracts, the central bank is putting an undue burden on employees to help bring inflation down, they argue.
Earlier this month, Bea Bruske, president of the Canadian Labour Congress, wrote a scathing editorial admonishing Mr. Macklem for his comments about wage restraints. She said that it was not the role of the Bank of Canada to “undermine the collective bargaining power of workers,” and suggested that Mr. Macklem had been influenced by “Bay Street and bank economists, who have spent months raising the menacing spectre of a wage-price spiral.”
The pace of wage growth is picking up in Canada, although it remains well below the rate of consumer price inflation. Average hourly wages grew 5.2 per cent year-over-year in July, while the Consumer Price Index increased 7.6 per cent that month, Statistics Canada said Tuesday.
Union leaders see a major opportunity to make gains for their members and for the labour movement more broadly. The job market is incredibly tight, with unemployment at a record low 4.9 per cent and job vacancies far outstripping available workers. Meanwhile, the surge in inflation is pushing cost of living concerns to the centre of the national conversation.
Prior to the 2008 recession, it was more common for collective agreements to have COLA (cost of living adjustment) clauses, which would index wage increases to inflation, according to Unifor’s Ms. Payne. “It is something we need to start negotiating back into agreements. This is an economic moment where you have a couple of things coming together that can really help workers catch up.”
Peggy Nash, former NDP finance critic and member of Parliament, said that this is also a “fortuitous” moment to encourage non-unionized workers to think about the benefits of unionization – mainly, as a means to negotiate higher wages.
The unionization rate in Canada – a measure of employees who are members of unions as a percentage of all employees – has crept up only slightly over the last five years, according to data from Statistics Canada. In 2017, for example, that percentage was 28.4, but it has climbed to 29 per cent as of 2021. But unionization in the private sector has fallen dramatically in recent decades.
“It’s an important time for the labour movement to be supporting unorganized workers and helping them join a union. This kind of opportunity hasn’t presented itself for a long period of time,” Ms. Nash, now an adviser at the Toronto Metropolitan University’s Centre for Labour Management Relations, said in an interview.
In regards to Mr. Macklem’s comment on wage restraint, CFIB president and chief executive Dan Kelly said the Governor was simply doing his job by explaining the Bank of Canada’s view of inflation. At the same time, Mr. Kelly said that suggesting businesses refrain from raising wages was not practical advice in today’s ultratight job market, where employers are competing for scarce workers.
“You might say, okay, at my restaurant, if I increase my wage rate by $2 an hour, that’s going to lead to more inflationary pressure, and therefore I should hold off on doing that,” Mr. Kelly said in an interview. “But you’d really have to be motivated to take one for the team to go down that road and see your business suffer as a result.”
He said that Mr. Macklem’s comment was more relevant for governments and large employers with unionized work forces, where the outcome of wage negotiations forms the baseline for future bargaining.
As for small- and medium-sized businesses, surveys of CFIB members suggest they intend to raise wages by 3.5 per cent to 4 per cent in the months ahead, Mr. Kelly said. That’s the highest reading on record, although still well below inflation.
“I don’t think employers large or small have the ability to increase wage rates all the way to where inflation is hitting right now. But I also don’t think that they’re going to hold the line right now and keep it to 1 to 2 per cent, because otherwise they will have a clearing out of their current staff base to an extent that it’s going to make their businesses unsustainable.”
Vanmala Subramaniam has been a journalist for more than a decade, with a career spanning television, print and online media. She began her career as a producer at the Canadian Broadcasting Corporation, working on various news and current-affairs programs, including the investigative show the fifth estate.
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