Friday, March 09, 2007

Inflation and wages in Canada.

I could stare at this chart for hours. There's several fascinating lessons to be learned. One is the one actually discussed in the linked post, namely that Alberta's wage boom has been coupled with massive inflation. So, the gain is actually quite minimal; the average Albertan has only marginally more buying power than at the same time last year. There's a lesson here about the "resource curse", I just know it....

Ontario and Quebec, the workhorses, both lumber along with respectable gains (Ontario's about twice Quebec's). But the Maritimes, with the exception of Newfoundland (for some reason), have all experienced exceptional wage gains compared to inflation. I don't know how to explain it -- my amateur economics gives out on me at this point -- but it's certainly against the common wisdom, which claims the Maritime provinces are economically weaker than the rest of Canada.

Manitoba and Saskatchewan also seem to be posting big gains in wages over inflation, but about twice as much as BC's. Again, I can't explain it; but what are those two Western provinces doing that BC (and, to a much greater extent, Alberta) aren't? T

he explanation given in the post for the Maritimes and part of the West seems specious to me, namely that since wages in those provinces are below the national average, proportional wage gains are easy to come by. That may be true, but unless inflation in those provinces is equal to or greater than inflation nationally, the disparity between the two measures doesn't make sense. Furthermore, it doesn't explain why BC and Newfoundland are outliers. There's also a suggestion that Manitoba and Saskatchewan are reaping benefits of a western boom without the associated inflation. That's not implausible (the wage increases are pretty uniform across the west, ranging between about 3.5 and 4.5%), but why is inflation so concentrated in Alberta, then? And why is BC at the bottom end of the wage increase?


undergroundman said...

I have no idea either. It seems surprising that inflation is so different across the country. Does Canada have something similar to the Fed?

I'm taking Intermediate Macroeconomics right now, and basically what I've been taught is still basically that increased money supply (from reduced prime rates or treasury securities) leads to higher inflation: too much money chasing too few goods and services.

Sounds like you're getting into the economics. Should take some classes on the side. ;)

ADHR said...

There's the Bank of Canada, but whether that plays the same role as the Fed in the US would take someone who knows the policy structures very well to answer.

I'd love to do more econ, but I don't have the time right now. Also neuroscience, and some evolutionary biology. It all seems relevant to me!