In the 30 years after World War II there was a remarkable growth in the Canadian standard of living. Average real weekly earnings grew at a rate that more than doubled every 28 years. The typical family not only experienced a steady material improvement, but parents could expect that their children would have double their own standard of living.
The fruits of this growth came not just in the form of higher private living standards, but the “social wage” also grew through the expansion of publicly provided health care, better pensions for seniors, and resources to address personal and regional income disparities. Public support for the taxes needed to fund this expansion was supported by the steady increase in real purchasing power the typical Canadian family was experiencing.
This remarkable growth was the result of the policy framework outlined in the White Paper on Employment and Income tabled in Parliament by C.D. Howe in 1945 which established raising the standard of living of Canadians as a “great national objective, transcending in importance all sectional and group interests.”
Since 1976, however, the growth in average real weekly earnings has slowed dramatically, and now would take more than 400 years to double. Because housing prices are imperfectly reflected in the Consumer Price Index this understates the stagnation of wages relative to the most significant cost for the Canadian dream. In 1976 the average price of a house represented 3.8 years of average earnings; in 2019 the average price represented 9.8 years of average earnings.
This stagnation was the result of the revised policy framework that emerged after the economic challenges of the 1970s. For most of the past 40 years Canada has been in a “bad equilibrium” wherein real wages have essentially stopped growing. In the absence of rising real wages the need for private sector innovation was reduced, resulting in lower investments in productivity-boosting capital, new products, and technologies. Because the rate of productivity increase has fallen significantly, business is more and more focused on keeping labour costs low. Stagnant real wages and a sense that workers are viewed as a cost to be minimized undermines workers’ commitment to innovation and productivity improvement. Government policy, consciously or unconsciously, has sustained the resulting low-wage-low-productivity model of competitiveness, hence keeping Canada in the bad equilibrium.
Turning this around will require a fundamental re-commitment to a steady improvement in the standard of living of the broad middle class – families that are reliant on employment for their primary source of income and that have limited individual market power to affect the wages they receive – as a central priority of government.
This commitment needs to be much more than pledging fealty to the middle class at election time and various boutique programs. It will require conscious and coordinated changes in key policy areas that will move the Canadian labour market from being the “buyers’ market” which it has largely been over the past 40 years, to a “sellers’ market” where real wages begin to rise again. This in turn will drive an increase in productivity growth, thus moving Canada to a “good equilibrium” – a higher-wage-higher-productivity model of competitiveness.
The policy changes required are:
- A re-orientation of monetary and fiscal policy to put more emphasis on achieving full employment;
- Paying attention to the basic arithmetic of wealth generation – wages paid, and net government revenue generated – in determining which economic-base industries to encourage or discourage;
- An approach to innovation that is based on a realistic analysis of what will, in the Canadian context, ensure benefits are broadly shared across the Canadian population;
- A shift away from immigration policy that is focused merely on increasing GDP to one focused on increasing GDP per capita and the economic success of newcomers and existing Canadian residents.
Chosen excerpts by Job Market Monitor. Read the whole story @ Rhetoric vs. Results: Shaping Policy to Benefit Canada’s Middle Class – Public Policy Forum