Canadian employees “not reaping” benefits of increased productivity

A new study by Ottawa-based Centre for the Study of Living Standards reports that Canadian employees have not received the benefits of increased economic productivity over the past two decades.

Over a 25 year period, real wages have been slightly lower than labour productivity growth.

Salaries first fell during the recession and stagnation of the early nineties, stabilizing in 1996 with real wages growing roughly at the same pace of labour productivity. But the lost ground was not made up.

A May 2008 Statistics Canada study reports that Canadian median earnings of full-time, full-year workers in Canada rose only $53 from $41,348 in 1980 to $41,401 in 2005. Over the same period, gains to the economy from labour productivity gains increased 37.4 per cent.

“Economists argue productivity increases should lead to proportional gains in inflation-adjusted wages,” said Andrew Sharpe, executive director at the Centre for the Study of Living Standards. “But the figures show this has not happened in Canada over the past 25 years.

He said the inevitable conclusion is gains from productivity advances have not been shared equitably among all members of society.”

Canadian workers have not been receiving their piece of the financial pie, when it comes to the huge economic benefits corporations are receiving from technological upgrades.

“Until recently corporations have been doing very well. Most companies are benefiting from the technological changes of the last decade and associated improved productivity of their staff, but these profits have not been shared among all employees,” he said.

Increased income inequality is a key fator responsible for stagnation of the median employee salary and failure of wages to rebound from the recession of the nineties .

“Earnings of the top 20 per cent grew 16.4 per cent, and of the bottom 20 per cent fell 20.6 per cent.”

Bad corporate governance is allowing CEOs and presidents to accept ridiculously high salaries and bonuses, he said.

Even if the market does poorly – employees at the top accept astronomically high fees that aren’t commensurate with their contribution or output. This factor is especially true in commodity sector which has profited from a commodity boom.

The bargaining power of the average employee has weakened over the past few years due to a decline in unionization, deregulation and increased outsourcing to low-wage companies.

“Decreased bargaining power has meant that labour’s share of income in Canada’s GDP has dropped,” Sharpe said. “When workers cannot exert pressure for pay increases, more of the total income tends to stay in the form of profits.”

There has also been a decline in “workers’ terms of trade”, meaning the price of goods workers purchase (as represented by the Consumer Price Index – the GDP deflator) has increased at a greater rate than the price of goods they produce, Shape said.

In this environment, technological change can also be seen as detrimental to the lower-level employee as technology has a high depreciation value — meaning the company needs to spend more on hardware and software to stay current.

Median wages will not improve any time soon either, Sharpe said. Any inflation-adjusted wages in today’s economic recession will be minimal or negative. And Canadians lost out on providing a proper economic cushion to get them through the poor financial days ahead.

It will also be difficult for corporations to get out of the economic recession if productivity growth is the key to increases in its standard of living. And employees will be less likely to improve their own productivity if they are not being compensated accordingly.

Despite wage stagnation of many employees, Sandra Lavoy, vice president at Ottawa-based Robert Half Technology said IT professionals as a group should not be concerned about this issue for the new year.

While IT salaries did suffer during the recession of the early nineties – they are reviving now and don’t seem to be adversely affected by the looming recession.

In Canada the average starting salary for an IT professional will increase 4.2 per cent in 2009, she said. This is compared to a 3.7 per cent growth in 2007 to 2008.

“Even with a volatile economy, average salaries are still growing rapidly. Retaining the top talent still remains a challenge for many organizations and companies are still willing to invest in candidates with IT skills.”

Rather than a slow down in hiring or a decrease in salaries, Lavoy said more companies are being cautious to avoid “costly hiring mistakes,” and choosing to hire more contract workers.

But IT professionals have more bargaining power as employers search for an individual with many IT skills and an IT talent shortage endures. Individuals with programming skills, such as Java are still in demand.

And many IT professionals are still being hired with bonuses, she said.

“If you are not paying people right, they will leave. Not all professionals will suffer during the recession – IT skills, finance, accounting and bilingual administration are all still niches of high growth.”

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