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Economic Viewpoint

Growing Public: How Government Compensation Is Keeping Wage Growth High in Canada

July 2, 2024
Randall Bartlett
Senior Director of Canadian Economics

The reacceleration in wage gains in May 2024 despite a rising unemployment rate and modest advances in real GDP raises the question: what’s keeping wage growth so high in Canada?

Drilling down into the data, we see the public sector is making an outsized contribution to wage growth. This reflects already-high hourly wages in the industry, strong recent growth related to labour negotiations, and surging hiring.

Greater federal public sector compensation is particularly notable, both in growth and level terms, relative to other levels of government and the private sector. Add to this sustained federal hiring at a pace in excess of published plans, and the current trend is unlikely to change soon.

What does high federal public service wage growth mean for the Bank of Canada? Probably not much. Its focus is likely to be on private sector compensation, which is more strongly linked to the business cycle. And it’s moving in the right direction, as still-elevated interest rates are working to cool private sector wage growth and inflation along with it.

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