July 12, 2017 / 2:06 PM / 2 years ago

Canada wage growth should pick up as labor market slack absorbed: Bank of Canada

OTTAWA, (Reuters) - Wage growth in Canada should pick up as labor market slack is absorbed and the impact of cheap oil prices dissipates, though it may remain in the lower end of what has been seen in the past, research from the Bank of Canada showed on Wednesday.

Canadian wage growth has been subdued since commodity prices began declining, in contrast to moderately stronger wage growth in the United States since early 2015, researchers wrote in a report.

The report was released at the same time as the Bank of Canada raised interest rates for the first time nearly seven years. In its monetary policy report, the bank said employment growth has been solid, while various wage measures suggest modest growth.

In their research report, staff at the Bank of Canada wrote that the most important factor weighing on Canadian wages has been slack in the labor market, while weak productivity growth has also pressured workers’ pay in both countries.

There has also been a more pronounced decline in wage growth in the goods-producing sector and regions tied to the energy sector, though the drag from the commodity price decline appears to have peaked in early 2016, researchers wrote.

After strengthening since early 2015, wage growth in the United States has recently flattened out despite ongoing tightening in the labor market

“The U.S. experience ... suggests that Canadian wage growth could remain in the lower range of historically observed levels if labor productivity growth is low relative to history and workforce compositional effects pose a drag,” researchers said.

Wage growth for older workers in Canada has also recently been weak, which may suggest that a growing number of retirees may have started to pose a drag on overall wages, the report said.

In a separate report by Bank of Canada staff on labor force participation rates, researchers found that as Canada’s participation rate did not decline as much as that of the United States following the global financial crisis, “the scope for drawing more prime-age workers in the Canadian labor force is more limited than it is in the United States.”

“Further developments in the Canadian participation rates are expected to be largely linked to structural rather than cyclical factors,” researchers said.

Reporting by Leah Schnurr, editing by Andrea Hopkins

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