Challenging times
In P.E.I., majority of those employed did not receive a wage increase in 2015
As we enter a new year, Atlantic Canadians are facing continuing economic challenges associated with a weak economic environment that has led to a prolonged period of weak job growth and wage growth across the region.
It has been more than seven years since the Great Recession. The region has struggled, along with most of the rest of the country, to regain a normal pattern of economic growth. The last seven years have been anything but normal. Average real GDP growth in Prince Edward Island has been 1.4 per cent over this seven year period (20082014). Keep in mind, Atlantic Canada has trailed the rest of the country for most of the past fifty years or so and that trend continues.
That has led to fewer economic opportunities for both those living in the region and those interested in living in the region. P.E.I. has done better than the rest of the region economically mainly due to the fact that it is the only province in Atlantic Canada that has steadily grown its population, although that economic growth has still been relatively weak.
There has been growing pressure on individual households in Prince Edward Island and across Atlantic Canada as a consequence of low wage growth. Indeed, our latest data indicates that the majority of those employed in the region had no wage increase in 2015. This is the seven straight year where a minimum of at least 40 percent of those employed had not received a wage increase. And while inflation has moderated during this period, the increase in the cost of goods and services has left the vast majority of households worse off financially and with less discretionary income than prior to the Great Recession.
This in turn has restrained consumer spending, further hurting economic growth in P.E.I.. Over the last couple of years, we have seen the direct consequences of this pattern in the housing sector where the combination of a stagnant and aging population and weak wage growth has dampened the housing market across the region. The housing market will take a long time to recover from the current situation.
In P.E.I., the majority (57 per cent) of those employed did not receive a wage increase in 2015. In fact, six per cent actually had their wages reduced. The overall average wage increase for all those employed was a rather modest 1.2 per cent. The good news was that, for the first time in nearly seven years, the average wage increase on the Island exceeded the rate of inflation.
Less discretionary household income changes consumer behaviour. Consumers spending on discretionary items like entertainment, travel and clothing is most likely to be negatively impacted in the current environment, as consumers focus on the necessities of life ( food, shelter, transportation) which are all increasing in costs, leaving much less spending for discretionary items or the fun part of life.
Less money for the “fun parts of life,” going on a vacation, going to a movie or out to eat tends to make people less happy and more critical of large institutions including government. It is one reason for the recent volatility in change of government provincially, where few governments are given a second mandate that do not meet the expectations of the population.
In general, Atlantic Canadians earn about 15 per cent less than the average Canadian. With the exception of housing, the cost of living in Atlantic Canada is either the same or higher than the rest of the country, while taxes are among the highest.
P.E.I. must focus on strategies that will grow the economy and thus lead to population growth and larger tax bases to pay for public services. It is especially important that the province increase its export businesses, natural resources sector and knowledge industries. This region needs to be more entrepreneurial and less dependent on government. We need much more research and development across the region, more innovation and certainly a lot more productivity improvement.