The latest on wages and inflation
Real wages are falling, but so are job vacancies. Headline inflation is down, and core inflation is *sticky* but that's not a surprise if we look at the data.
Average Weekly Wages
Statistics Canada released the latest data from the Survey of Employment, Payroll, and Hours (SEPH) today. The Labour Force Survey (LFS) gets all the glory, partly because it gives us the all important unemployment rate, but also because it contains more timely information (LFS data is released three weeks after it is collected, and SEPH data has a two month lag.) But SEPH has detailed information on employees by industry (it doesn’t cover the self-employed), and for the past couple of years the most recent job vacancy data is released along with the SEPH. I love the LFS because it tells us more about workers, the SEPH is important too, for what it tells us about jobs.
I like looking at changes in weekly wages, because it incorporates two elements - hourly wage and hours worked per week. We sometimes see wages rising and hours falling (or vice versa), but I want to know how much money workers are taking home, and this is a good way to track that.
Comparing the average weekly wage for October 2022 to the inflation adjusted average weekly wage for October 2021, we see that in every industry average real wages fell. The overall average weekly wage cut was 3.3%. In the chart below I’ve bolded the two industries that have consistently had the largest job vacancies - real weekly wages fell by 6.7% for Accommodation and food services, and by 4.3% for Health care and social assistance.
Job Vacancy Trends
In October 2022 the number of job vacancies fell, a good sign for those worried about labour shortages, but the number of unemployed workers fell too - so we still had 1.2 unemployed workers for every job vacancy in October. The largest decline in job vacancies was in Accommodation and food services - compared to last October there were 33,000 fewer job vacancies in this industry. That accounts for the lion’s share (70%) of the year over year decline.
Still there are 120,000 job vacancies in Accommodation and food services, and 150,000 in Health care and social assistance. Given the persistently high number of job vacancies in these two sectors, we would expect their wages to be growing faster than they are.
To be fair, we should look at whether or not the wages offered have changed in these sectors, because wages for new hires might be increasing more quickly than overall wages. This data is only released quarterly, so I compared the inflation adjusted wage offered in Q3 2021 to the wages being offered in Q3 2022. We are able to dig down one level on each industry. You can see that the real wage offered increased for ambulatory health care services and accommodation services, so we might expect that vacancies in these industry subsectors will improve faster than in the other subsectors where the real wages offered aren’t increasing.
Note: JVR is the job vacancy rate, or the ratio of vacant jobs to total labour demand. Labour demand is equal to vacant jobs plus filled jobs.
Trends in the Consumer Price Index
The big news yesterday with the consumer price index was that the Bank’s ‘core’ measures of inflation are sticky. This is causing speculation that the Bank will have to increase interest rates more in 2023, and additional concerns about wages pushing prices up.
But it makes sense that these measures aren’t changing as fast, by design they didn’t go down as far as the all-items CPI did in 2020, and they didn’t go up as fast in 2022. They are less volatile. We also only have the change compared to 12 months ago, so it’s hard to tease out more subtleties in recent changes.
But we do know that a big part of current inflation is increases in shelter costs. On average, shelter costs make up about 30% of the total CPI basket. Increasing interest rates has caused some of the increase in shelter costs, which is important here because it means that the increase in shelter costs lagged behind overall CPI.
I take two things away from this - one, I’m skeptical that the flat measures of core inflation are telling us very much right now, and two - governments absolutely have to act on the availability and affordability of housing. The highest increases in shelter costs are in the Maritimes, 14.7% year over year for PEI, 11.3% in Nova Scotia.