Wages Growing at Pathetic Levels

You often hear people complain that their wages or salary are too low. These complaints are often met with people saying “I remember when I worked for $X, you should be grateful.”

Your income can grow only to the extent that you do

T. Harv Eker

However, are those complaints justified? In this weeks blog post we look at historic wage growth in Canada since 1991. We also look at what the purchasing power of a dollar today is relative to other times throughout history.

Wages from 1991-2019 comparison

In July of 2019 the average hourly wage in Canada was $25.54. Assuming that is gross income and full-time employment, that is just over $51,000 a year. Not a terrible income depending on which part of Canada you live.

Now if we look at January of 1991, the average wage was $13.73. Using the same assumptions as above that amounts to roughly $27,500. That means, in 28 years the average income has nearly doubled.

Below is a graph showing wage growth from 1991 to 2019. On the y axis is $/hr, the x axis shows the year.

Doing a quick time value of money calculation, that is a growth rate of roughly 2.23% year over year. Sounds not bad, right? Well what if we take inflation into consideration.

The average wage today ($25.75), is equivalent to $15.68 in 1991. So, if we compare $15.68 to $13.72 (average wage in 1991), our growth rate drops significantly to 0.48% year over year or 14.28% total over 28 years. Not so great anymore.

Granted, we still have to acknowledge that wages have increased. However, with our slightly higher wages, are we actually able to buy more?

How Much Can You Buy?

It is one thing for wages to increase, but if everything else increase by the same or more, your not any further ahead. $51,000 today is the equivalent of roughly $31,000 in 1991. That being said, lets look at what $51,000 can buy you today compared to $31,000 in 1991.

Wages vs. Housing

In a article written by Rob Carrick, Rob quotes the average home price in 1984 at $76,214. Using an inflation calculator the average home price in 1991 would have been $104,418 (this assumes home prices increased by the same amount as inflation). So based on $31k (today’s average salary in 1991), a home was only 3.4 times the average income.

In comparison, the average housing price in 2018 was $495,000, or 9.7 times the average income of today. For more on our take of the housing market, read “Housing Market: A House of Cards“.

Housing prices have increased by an average of 5.93% year over year from 1991 to 2018 or roughly a total 474% increase over the 27 years.

Wages vs. Car

In 1991, you could buy a brand new Honda Civic Hatchback for $7,155. If the price of a car only increased with inflation the same car should be worth $11,750 in 2019!

However, a brand new 2019 Honda Civic Hatchback’s MSRP is roughly $21,500. That is more than 3 times the cost of a 1991 civic. That’s an increase of more than 4% year over year or just over 300% increase over the 28 years.

In 1991, you could have bought 4.3 Honda’s with one years salary of $31,000. In 2019, you could have bought 2.4 cars with one years salary.

Wages vs. Tuition

According to an article by CBC from 2013 they quote the average cost of attending university in 1991 at $1,464. Again if we calculate using the stated average inflation rate, that would translate to about $2,400 in 2019. Wouldn’t it be great if university was $2,400 today?

However, according to Statistic.com the average undergrad tuition costs for Canadian citizens studying in Canada in 2019 is $6,838. Comparing the cost of tuition in 1991 to 2019, that is an increase of 5.66% year over year, or a 467% increase over the 28 years.

In 1991, you could have paid for 21.2 years of tuition on one years salary. In 2019, you could only have paid for 7.5 years of tuition with one years salary.

Wages vs. Big Mac

Lastly lets look at the price of a big mac from McDonald’s. In 1991, a big mac in Canada cost an average of $2.35. Assuming the price increased with inflation, today a big mac should cost $3.85

However, if we go to skipthedishes.com for a McDonald’s near us, the price of a Big Mac is $5.69. That is a year over year increase of 3.21% or total increase of 242%.

Just for the sake of it, you could have bought 13,191 Big Mac’s in 1991 with one years salary. That drops to 8,963 Big Mac’s in 2019 with one years salary.

Conclusion

Although we have seen marginal wage growth over the last 28 years, it is clear that inflation is a lot higher than the stated roughly 2%. The cost of housing, cars, tuition, and a Big Mac have all increased drastically. That being said, the complaints about wages may be justifiable.

However, complaining won’t get you anywhere. If inflation is in the 5-6% range (which is probably more realistic than the 1.5-2.5% range) it really makes you rethink your strategic wealth plan. If you don’t have a strategic wealth plan, it is more important than ever to sit down with a financial advisor.

For more on our take on the topic of inflation, read our previous post on “Are The Posted Inflation Rates A Lie?” and “Inflation is higher than you think“. For more information on wages read are post on “You Are being Underpaid“.

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Sources:

https://moneymaven.io/mishtalk/economics/wage-growth-for-men-about-1-4-per-year-since-2000-women-about-1-2-per-year-Xedz0d7J10eclu28MrPyGw/

https://tradingeconomics.com/canada/wages

https://www.bankofcanada.ca/rates/related/inflation-calculator/

https://www.cbc.ca/news/canada/university-tuition-rising-to-record-levels-in-canada-1.1699103

https://www.statista.com/statistics/542989/canadian-undergraduate-tuition-fees/

https://www.bankofcanada.ca/rates/related/inflation-calculator/

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