Tiff Macklem urges job investment as inflation nears 2%, highlighting labour market and productivity issues
Bank of Canada Governor Tiff Macklem emphasized the importance of maintaining a competitive labour market.
He stated that with inflation nearing two percent, there is room for job investment without triggering inflation, as reported by the Financial Post.
Speaking at the Winnipeg Chamber of Commerce, Macklem said, “Beyond the near term, a healthy labour market is critical to strong non-inflationary growth in Canada.” He highlighted the need for investments in an inclusive labour market, smart immigration policies, and a robust education system.
Macklem noted the severe impact of the pandemic on the labour market, with unemployment peaking at over 14 percent in May 2020. The subsequent reopening of the economy led to record-low unemployment and high job vacancy rates.
These dynamics have resulted in elevated wage growth, which remains persistent. Before the pandemic, unit labour costs grew by an average of 1.9 percent year-over-year; currently, the growth rate is 5.4 percent.
Macklem remarked, “The fact that wages are moderating more slowly than inflation is not surprising; wages tend to lag adjustments in employment. Going forward, we will be looking for wage growth to moderate further.”
In May, the overall unemployment rate was 6.2 percent, with higher rates for youth aged 15 to 24 and newcomers, at 12.7 percent and 11.7 percent, respectively.
Macklem acknowledged that these groups feel the effects of slower growth more acutely, but this also indicates potential slack in the labour market. He stated, “That suggests the economy has room to grow and add more jobs without creating new inflationary pressures.”
Macklem also addressed Canada’s productivity challenges, referencing recent comments by Senior Deputy Governor Carolyn Rogers about the urgent nature of the issue.
Despite better job growth, Canada lags behind the United States in GDP growth and economic output per worker.
The country's productivity problem stems from weaker investment in intellectual property, fewer innovations, less investment in machinery and equipment, and lower per-worker investment compared to the US.
Macklem posed a critical question: “The deeper question is why have we had systemically less investment in Canada than the United States? Or, to put the question in the positive: how do we make Canada more investable?”
He stressed that finding answers to these questions is vital for increasing the non-inflationary growth rate of the economy and improving the standard of living for Canadians.
