Wages expected to outpace inflation in ‘real gains’ compensation for workers

Wage gains across the country are expected to continue outpacing inflation in 2025, according to a new report.

 

The national average base salary is projected to rise 3.6 per cent in 2025, while Canada’s annual rate of inflation is now tracking right on the Bank of Canada’s target, at two per cent.

 

“You’re seeing real gains in terms of compensation,” said Anand Parsan, principal and national practice leader for the compensation consulting practice at Eckler, which conducted the survey.

 

“We’ve had a couple of years where … folks weren’t really seeing any real increases in their wages. It felt like everything was going up and up and they weren’t getting increases to match.”

 

But now that inflation is down and average wages are projected to rise, people are likely to see an increase in purchasing power, said Parsan, who was also one of the survey’s lead researchers.

Real wage increases surpassing inflation is not unheard of, said Armine Yalnizyan, economist and Atkinson Fellow on the Future of Workers as well as a contributing columnist for the Star. “Wage growth has eclipsed inflation since February 2023. Year-over-year growth in average hourly wages has hovered around five per cent since then, even as the pace of inflation has fallen in Canada,” Yalnizyan wrote in a recent column.

 

In 2022, the Bank of Canada warned that wage growth could lead to more inflation, but that is unlikely to happen, Yalnizyan wrote. “Wages can grow faster than inflation for years without triggering higher inflation.”

 

People will be able to do more than “just pay the rent and buy groceries,” Yalnizyan said. They won’t just be getting by; they’ll have a little extra money to play with, which will be good for business.

 

The survey, conducted from June to August 2024, collected responses from more than 500 Canadian organizations.

 

It found that businesses are now more certain about their salary budget planning. Just 18 per cent of businesses remain undecided about their salary budgets, versus 58 per cent in 2024.

 

Alberta and B.C. are the provinces projecting the highest salary increases, at 3.6 and 3.9 per cent respectively, while Yukon and P.E.I. are projecting the lowest salary increases at 3.1 and 3.2 per cent respectively.

 

The highest projected average salary increase by industry, according to the report, is expected to be in real estate.

 

The health care and education sectors reported the lowest projected salary increases, with some organizations even planning to freeze compensation in 2025.

 

The result could be “increased churn and turnover in some of the sectors where we’re the most reliant on consistency of service,” Yalnizyan said.

The findings indicate that organizations will need to offer more than just base salary increases to entice workers, said Parsan.

 

“As the labour market continues to rebalance, organizations are shifting their attention toward effectively managing their compensation programs,” he said. “How they communicate their total rewards package to employees, how transparent they are with compensation, how effective and equitable are their pay programs.”

 

The wage increases mark a return to “pre-pandemic norms” Parsan added.

 

During the pandemic, “there was a lot of money injected into the economy. Interest rates were at an all-time low. The federal government was subsidizing businesses to help them through. There was a lot of money in the economy and that fuelled the inflation.”

 

Inflation began to surpass real wage growth, prompting the Bank of Canada to raise interest rates to slow inflation, he added.

 

Now, the situation has flipped. “Inflation is really dropping fast.”

 

 

 

 

This article was first reported by The Star