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Labour forces: Inflation plus full employment equals wage pressures

Employees hold all the cards in Canada's tight labour market.
The BC General Employees’ Union began job action in mid-August, after rejecting an offer of an 11 per cent pay increase over three years.

This article is part of BIV's in-depth look at the labour forces shaping work and business in B.C.

Call it the inflation feedback loop. Rapidly rising prices for consumer goods invariably put pressure on employers to hike wages, which adds to the inflation cycle.

This pressure isn’t as intense when unemployment is high, but in a tight labour market, it’s inevitable. And the current labour market is tight as a drum.

In July, Canada’s unemployment rate was just 4.9 per cent, while B.C.’s was 4.7 per cent.

In B.C., for business, finance and administrative positions, the unemployment rate is just two per cent, said Mike Shekhtman, regional director for Robert Half recruitment agency.

“So we’re looking at full employment for many specialized positions,” Shekhtman said. “Over the past 18 months, we saw such an acceleration coming out of the pandemic across multiple industries, when we saw unemployment reaching all-time lows.”

According to the Canadian Chamber of Commerce, employers were looking to fill one million job vacancies this summer. The result is predictable.

“Wage pressures are building – they accelerated to 5.2 per cent year over year in June, up notably from 3.9 per cent a month earlier,” the chamber said. 

“This will only add to broader cost pressures for Canadian businesses, and the numbers will likely keep rising in the context of even higher inflation. This will make things particularly tricky for small and medium-sized businesses who are already facing significant hiring challenges.”

Canadians are already starting to see labour strife, as unions demand wage increases commensurate with inflation. 

In mid-August, for example, the BC General Employees’ Union (BCGEU) began job action, after rejecting an offer of an 11 per cent pay increase over three years, plus a $2,500 bonus per worker. The BCGEU said the BC Public Service Agency failed to meet union demands for cost of living provisions to address inflation.

Bank of Canada Governor Tiff Macklem, hoping to tame inflation with rising bank rates, and fearful of accelerating inflation, recently urged employers to refrain from hiking wages, to the great ire of unionized labour.

Michael Scott, vice-president of Impact Recruitment’s building division, which works with real estate developers, builders and building managers, said there are labour shortages “right across the board” in every area.

The COVID-19 pandemic worsened an already tightening labour market. Some workers took advantage of the Canada Emergency Response Benefit (CERB) to stop working altogether for a time. 

Many who re-entered the workforce had new demands, like the option to work remotely, according to recent Impact Recruitment polling.

“We did a recent one,” Scott said. “The results were 24 per cent of the candidates consider, now, flexibility and remote working opportunities to be the most important benefit that they can get from their new employer.” 

One particularly “hot” space where demand far exceeds supply of workers is digital marketing, Shekhtman said. 

And despite recent headlines about high tech companies like Hootsuite laying off employees, programmers, engineers, data analysts and other high tech workers are still very much in demand, Shekhtman said.

In a recent survey, Robert Half found only two per cent of tech company managers planned to eliminate positions this year, while 40 per cent said they would be hiring new employees, and 50 per cent said they’d be filling vacant positions.

Job recruiters are also seeing more employers willing to hire outside their immediate geographic region.

“For us, a silver lining of the pandemic is that companies have realized that, for a segment of the market, some positions can be done remotely,” Shekhtman said.

In such a competitive labour market, many employers feel pressure to offer higher wages and salaries. But that can create real problems in an organization. Paying a new employee the same, or more, as someone who has been with the organization for years is a recipe for discontent.

“There’s a challenge for many organizations, where they’re very much concerned about internal equity,” Shekhtman said. “So maybe the base salary is not something that they can have a lot of flexibility with.”

Some employers are trying to avoid this problem this by offering signing bonuses, rather than higher base wages. Of the managers recently surveyed, Robert Half found 31 per cent are offering some form of bonus. Some also offer perks, like free parking or gym memberships.