But due to current inflation levels and other factors affecting the labour market, workers in many industries may need to lower their expectations for a salary increase.
Recent data from Statistics Canada also shows the country’s economy may have entered a technical recession as high interest rates curb consumer spending. The agency’s gross domestic product report for August was released on Tuesday and shows economic growth remained flat throughout the month.
I’ll explain why fewer promotions are expected for 2024 and outline some of the primary reasons why many companies are projected to reduce salary increases next year.
WHAT IS A REASONABLE SALARY INCREASE?
Whether a salary increase is considered fair will often depend on personal opinion. Many companies offer a three to four per cent pay hike each year, according to recent statistics. This increase may also come with a promotion.
While this might not seem like a lot of money, consistent raises can compound over time. Along with salary increases, some companies may also offer non-monetary benefits, such as access to professional development courses, increased paid time off, or a more flexible work schedule.
From a business perspective, companies would rather retain a skilled employee than lose them to a competitor.
CANADA’S LABOUR MARKET IS COOLING
Between 2021 and 2022, the country’s labour market was “hot,” which led to higher-than-average wage increases and salary compensation. Some of the key characteristics of a hot labour market are:
- Abundant job opportunities
- Lower levels of unemployment
- Strong wage growth
- Greater negotiating power for employees
When the labour market is hot, skilled workers are in high demand and have more options for employment. This, in turn, gives them greater power to negotiate for a raise or promotion.
Between 2018 and 2019, prior to the COVID-19 pandemic, the average hourly wage rate increased just 2.8 per cent from $29.72 to $30.56.
But from 2021 to 2022, the average hourly wage rate in Canada increased from $33.05 to $34.55, according to Statistics Canada data released earlier this year. This number represents a 4.5 per cent wage increase and applies to employees across all industries in Canada.
When looking at Canada’s unemployment rate throughout 2021, this figure decreased from 9.4 per cent in January to 5.9 per cent in December, a significant change for a one-year period. By contrast, as the labour market cooled over the following months, unemployment fell to five per cent in December 2022.
Ultimately, hot labour markets aren’t sustainable in the long run. Throughout 2023, unemployment has hovered between five and 5.7 per cent.
HOW CAN INFLATION AFFECT THE LABOUR MARKET?
When inflation outpaces wage growth, the amount of goods and services that can be bought on a specific income, decreases. Otherwise known as real wage or real income, this refers to the amount of money someone makes after accounting for inflation.
This, in turn, reduces the purchasing power of employees, and may lead them to ask for higher wages to compensate for the decreased value of their earnings.
Additionally, if there’s a high demand for goods and services, employers may need to attract and retain workers by offering higher wages, especially if there are country-wide labour shortages, such as the ones noted by Statistics Canada in 2022. These shortages have been especially prevalent among health-care workers.
This, in turn, can create a hot labour market where workers have more bargaining power, often resulting in higher wages and salary increases.
The inflation rate alone doesn’t determine whether a labour market is hot or cold, as other factors such as global events, supply chain disruptions, policy changes, and health crises can all affect the overall temperature of a labour market.
However, current inflation rates can affect employee pay raises. For example, if employers anticipate further inflation, they might be more willing to grant wage hikes, expecting that future sales will be at inflated prices.
EMPLOYER COMPENSATION MAY RETURN TO PRE-PANDEMIC LEVELS: REPORT
Mercer, the financial services firm, recently released the results of its latest compensation planning survey, conducted in August. The survey includes data from more than 500 organizations of different sizes, operating in 15 industries.
Responses from the survey reveal that many employers will be taking a more cautious approach to salary increases next year, with their budgets expected to decrease year-over-year.
Although nearly half of respondents said annual salary increases will be similar to what was reported this year, 24 per cent said these increases will be lower in 2024 compared to the year prior. Just 13 per cent of the companies surveyed said they plan to boost their annual salary increases.
In addition to reduced wage increases, some employers revealed they also plan to cut down on the number of promotions given to their workers next year. Companies said they expect to promote 6.5 per cent of their employee population, compared to 8.1 per cent reported in Mercer’s survey conducted around the same time last year.
KEY FACTORS DRIVING A SLOWDOWN IN SALARY INCREASES
Looking at Mercer’s latest survey, there are several reasons why companies seem to be taking a more conservative approach towards wage increases and promotions heading into 2024.
Fifty-nine per cent of respondents claimed that overall economic uncertainty was the primary factor behind the anticipated reduction in salary increases.
Recently, the International Monetary Fund announced that it expects global economic growth to fall to 2.9 per cent in 2024, following what is anticipated to be a growth of three per cent in 2023.
Some of the factors that could be contributing to this forecast and economic uncertainty as a whole include:
- Global conflicts and tensions
- Supply chain disruptions
- High interest rates in many countries
- Rising energy prices
Additionally, in the face of a potential recession, many Canadians say they are worried about the state of today’s economy and whether they are financially prepared for the future. A recent poll published by RBC on Sept. 20 revealed that 77 per cent of respondents said they haven’t been able to save as much money as they’d like because of the rising cost of living.
Behind economic uncertainty, 44 per cent of respondents involved in the Mercer survey claimed that their company’s recent financial performance is to blame for the reduction in projected salary increases.
As many consumers continue to experience increased financial pressure, they tend to operate on tighter budgets and spend less money. Signs of this behaviour are already being seen, and could spill into the holiday season. The 2023 Holiday Retail Outlook survey from Deloitte Canada shows holiday spending is projected to reach a five-year low in 2023.
SHOULD YOU LOWER YOUR EXPECTATIONS FOR A RAISE?
Due to a hot labour market, many workers have received higher-than-average salary increases over the past few years. However, a cooling labour market combined with economic uncertainty could lead many employers to reduce their projected salary increases.
That being said, it’s still fair to expect a standard three to four per cent raise based on merit or a promotion.
For helpful tips on how to ask for a raise during a time of high inflation, click here.
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