For those of us working, there is a recurring desire to get raises to reflect our increasing value within the organization. At its core, this desire often stems back to the fact that when you started working at your current job, you did not know as much or perform as well as you do now. So, over time, a higher compensation should be provided as you are a better, more knowledgeable, more efficient and more integrated employee.
Achieving that raise can come in a variety of ways, depending on how your organization is structured and what relationship you have with your manager. Sometimes, it comes in the form of an annual review where you could expect to get a raise that falls within a range of possible raises based on your performance. For healthcare and other unionized workers, there is typically a multi-year agreement in which your exact experience and role are defined with specific hourly rates that need to be paid each year. This agreement would need to be renegotiated between the union and organization(s) periodically, which has sometimes resulted in strikes when there is a standstill. For others, especially in smaller companies, it simply is a question to be asked to your direct supervisor when you have felt that the time is right to get a bump in pay.
All of these different methods work towards achieving the same end result. So, how good have these negotiations and increases in worker performance in Canada been in advancing the purchasing power of the masses? Between January 1991 and January 2017, the average hourly wage in Canada has increased from $13.73/hour to $24.28/hour, which is an average arithmetic raise of $0.41 a year, which seems small. All that work for only a few dimes extra an hour? Depending on your job environment, you could probably find that much on the floor each hour if you looked hard enough. However, if you convert this to a geometric percent increase, that equates to a 2.96% increase in wage each year.
That actually doesn't sound bad. Each year you work, it seems likely that you'd be at least 3% more productive each year through some combination of efficiency, knowledge and skills. Something I want to highlight is the fact that the years between 1991 and 2017 represent a huge chunk of Baby Boomers nearing the end of their careers and retiring. This demographic trend is important to note, as this means that a large proportion of the workforce during this time was getting into the most senior, highest-paying roles in their organizations, in general.
Between 1999 and 2014, Baby Boomers slowly shrank as a percentage of the population in the workforce as the younger generations came in to fill entry-level roles and start gaining career-setting experience:
With this generational information in mind, I theorize that the wage growth between 1991 and 2017 is one that could statistically be skewed higher due to the proportion of senior-level roles and experience that Baby Boomers have filled during this time. As such, I would expect wage growth to drop over the next couple of decades.
So, maybe instead of 3% a year on average, we could expect 2.5%, which is still not bad, right? Well, apart from being a better worker, the other aspect that rising wages are supposed to cover is inflation, which is the rising cost of goods needed to live. I touched on this concept in a previous article, and the Bank of Canada has a calculator to estimate the average inflation between years. In Canada between 1991 and 2017, the average CPI geometrically compounded is 2.23%. This means that during this time frame, the actual proportion of wage increase as a result of increasing skills and performance is a mere 0.73%!
Coming back to the generational shift, if this small bump in wages decreases during the next few years, we could actually be losing purchasing power even if we get a 2% wage increase. Although you may have a limited say in your wage increase, it is important to consider this as it puts in perspective how most of your wage increases will likely just go to stuff you had to buy to live anyway, and is not truly a raise in which you get to save or spend much more to celebrate your expanding work experience.