The Evolution of the Productivity-Median Wage Gap in Canada, 1976-2019

The median wage is a key metric to assess developments in the standard of living of the population. Productivity gains are passed on to workers as real wage gains. But in recent decades the proportion of labour productivity gains that are being passed on to the typical or median worker has fallen in many advanced countries, a process known as decoupling. The article uses an accounting framework developed by the Centre for the Study of Living Standards to quantify the importance of the factors affecting the relationship between productivity and real median wages. It presents results for the 1976-2019 period in Canada. A key finding is that the annual gap between labour productivity growth and real hourly median wage growth fell from 1.36 percentage points per year in 1976-2000 to 0.46 points in 2000-2019. This was due to slower growth in wage inequality, the end of the decline of the labour share and an improvement in workers terms of trade. Productivity growth was relatively stable between periods. In the 1976-2000 period, the bargaining power of workers fell dramatically due to high unemployment, falling unionization rates and a rising import share. After 2000, these trends reversed or stabilized, improving the bargaining power of workers.