A Drop in Wages without an Official Recession

Where’d My Salary Go? A Drop in Wages without an Official Recession

When the worldwide financial crisis showed up in Alberta, the economy shrunk by about six percent. When another downturn hit home in 2015, the economy contracted by about four percent, and this year should bring about another two percent reduction. One key difference between now and then, though, is that Albertans are feeling the pinch much more keenly.

Let’s go back to 2009. The average worker in Alberta brought home about $950 per week, adjusting for seasonal work, overtime wages and figured before deductions for taxes and other payroll matters. However, Albertans saw their average wages grow by about three percent that year, despite the fact tha the economy was having to suffer from the financial crisis.

The same thing has not happened in 2016. Between January and May of this year, the average worker brought home approximately $1,120 per week. This is about a two percent drop from 2015 levels and three percent from a high point that wages hit back in 2014.

Why is there this gap? The key word is oil. In 2009, the recession had to do with financial institutions, and the biggest victims were the banks. The price of oil did slide to an average of US$62 during 2009, but companies could still make profits pulling it out of the ground. This meant that producers could boost wages to bring in more employees, and so the Albertan economy recovered quickly, posting a five percent growth level in 2010.

Obviously, the average wage has increased a lot since 2009, about 18 percent. Inflation has gone up too, but only by 11 percent. The biggest factor in the increase in wages has to do with the money that the oil and gas industry is paying their employees. However, now that oil prices have been sinking more precipitously, energy companies have been cutting back on their overtime and overall wages, and so the average income in Alberta has fallen as a result.

So we find that, adjusted for inflation, wages are about 8 percent lower at the end of May 2016 than they were in May 2009. What does this mean for Albertans?

Well, if you work in the oil and gas field, you find yourself stressing each Friday afternoon, hoping that you don’t find a layoff notice in your mailbox. The prospect for employment in that sector in Alberta has become so grim that some people are moving east, at least temporarily, so they can make money and ship it back home to their families, so they can keep their mortgage payments going and their lives up and running.

If you work in an industry that relies on activity in oil and gas, you’re also hustling each month to make sure that your doors stay open. Service industries are seeing their income decline as they have fewer customers coming in the door. Over time, real estate values are going to start declining as people have to sell their homes for less than they otherwise would have – because who wants to move to a province where no one wants to work?

Cheap gas is a terrific thing – until you’re the one working in the oil and gas field. It will be interesting to see how this phenomenon plays out.

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