Household debt is sustainable if wages are rising fast. But they’re not.

Amid all the talk about Canada’s escalating household debt burden, CIBC Capital Markets deputy chief economist Benjamin Tal says the real problem is wages:

“I don’t think that the issue in Canada – especially now, (and) over the past five, seven years – is debt. The issue is income. The debt-to-income ratio is rising not because of the fact that debt is rising to the sky, but because of the fact that income is not rising fast enough.”

Tal also noted that Canada’s wage growth is lagging behind wage growth in the US, as reported by BNN Bloomberg:

“It posits that Canada’s ability to manage its debt has been hampered by the lack of growth in both wages and disposable income compared to the U.S. “It goes back to why [employers] are not raising wages, because they can,” Tal told BNN Bloomberg. “If you have a situation in which we restructure the labour market in a way that it’s more optimal in terms of the mismatch in the labour market, then [employers] will be forced to raise wages and the cycle will come back to normal.” Compared to the U.S., Canadians are also falling behind when it comes to other sources of income. “Zooming in on gross personal income, just under one half of the widening in the gap is due to lower growth in rental and interest/dividend income in Canada, as well as faster growth in government transfers in the U.S.” Tal wrote in the report.”

One thing that is rarely mentioned when it comes to wages in Canada is our incredibly high level of immigration. Canada is taking in about 360,000 people per year, which is about 3 times the US rate of immigration adjusted for population.

That large influx is great for many companies, but it is terrible for workers, as it reduces the bargaining power of each individual worker and makes it easier for companies to find workers at far lower wages and far lower benefits.

Combined with tax hikes like the carbon tax that raises costs for both consumers and businesses, and economic policies that are pushing investment into the US, things are getting worse for Canadian workers and Canadian families.

Until these policies change, wages for Canadians will remain weak, and the debt burden will continue to take a larger toll on our economy.

Spencer Fernando

Photo – YouTube

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