Why CRA workers may not get the hefty wage hikes they expect

Good morning!

Canada Revenue Agency workers have voted to strike if they don’t win some steep wage increases from the federal government, but recent data suggests the time for big, inflation-beating pay hikes may have already come and gone.

CRA employees are demanding a 20.5 per cent increase in pay over three years, plus an additional nine per cent to be added immediately to match salaries at other government agencies. The Public Service Alliance of Canada (PSAC) says the 35,000 CRA workers it represents have been working without a contract for more than a year, and need more money to deal with a higher cost of living brought on by elevated inflation.

“Our members are falling further behind as inflation soars and wages are stuck in neutral,” Marc Brière, national president of the Union of Taxation Employees, a component of PSAC, says in a press release issued April 7. “We’ve negotiated in good faith, but our members have had enough. Our bills are mounting, and our families are feeling the pinch. And now, we’re going to show the government that workers won’t wait.”

The strike isn’t a done deal — another round of negotiations will be held next week — but CRA workers will be in a legal position to walk off the job on April 14. That’s particularly bad timing for the federal government and anyone anxiously awaiting a refund given that the tax season is already in full swing.

But the timing might also be bad for any workers trying to score big wage hikes. For one, the rate of inflation is steadily cooling, with the consumer price index coming in at 5.2 per cent in March after reaching a peak of 8.1 per cent in June 2022. Last year, as inflation reached heights not seen since the 1980s, private-sector unions succeeded in securing hefty wage hikes for their members. In one case, casino employees represented by Unifor won a 25 per cent increase in pay over four years after striking for eight days, Bloomberg reports. But those increases came during a time of record job vacancies and intense labour shortages, which made employers more motivated to hang on to employees and boost their pay.

Now, employers say they’re less worried about finding workers, according to the Bank of Canada’s latest Business Outlook Survey for the first quarter of 2023. Labour shortages remain a concern, and more than half of businesses still plan to be on the recruiting trail, but the hiring landscape isn’t as dire as it once was. Business owners are now more confident they’ll be able to meet any increases in customer demand without “labour bottlenecks” getting in the way, the survey says. Further, the central bank’s staff shortage intensity indicator is no longer flashing warning signals. In the first quarter, the indicator fell into the negative for the first time in two years.

“On balance, businesses view current labour shortages as less intense than a year ago when they were extremely high,” the Bank of Canada survey says. “Firms indicated that it has become easier to find the workers they need. They attribute this to less competition for labour and an improved labour supply.”

That easing is also translating into lower wage increases. Business owners say they’re still planning pay hikes, but they expect the pace of them to slow considerably over the next year and remain steady going forward. Workers’ expectations just haven’t caught up just yet. They’re still betting they can snag bigger pay increases than employers are willing to offer, the survey shows.

In March, wages grew by 5.2 per cent compared to the same time last year, Statistics Canada says. But the gains were lower than they were in February, when wages were up 5.4 per cent year over year. Expect that trend to continue, economists say, as job vacancies keep falling from record highs. Stephen Brown, deputy chief North America economist at Capital Economics, says indicators point to a “sharp slowdown in wage growth this year.”

At the same time, the labour market may also be exhibiting subtle signs of pressure. Amid all its apparent strength, “early cracks have been forming under the surface,” Nathan Janzen, assistant chief economist at RBC Economics, says in a note.

Canada has added 383,000 jobs since September, including 34,700 jobs in March, Statistics Canada says. Those are strong numbers, but some economists say they could be partially explained by an increase in immigration. “Job growth was mainly driven by solid population growth, which takes a bit of the shine off the headline numbers,” Brendon Bernard, chief economist at jobs site Indeed, says of the most recent report.

The labour market could also weaken in the months ahead. Because monthly employment numbers are a lagging indicator, the data may not yet reflect the full extent of the Bank of Canada’s interest rate increases, Janzen says. It stands to reason that a flagging labour market and stalling economy would make negotiating for a big pay raise less successful.

Of course, the public sector doesn’t necessarily follow the private sector when it comes to wages and hiring intentions. But as a recession looms, the federal government is under pressure to rein in spending wherever it can, even as it commits billions to subsidize the green energy transition in Canada.

In the latest federal budget, Finance Minister Chrystia Freeland indicated that Ottawa is looking to tighten the public-service purse strings. The budget proposed a three per cent reduction in spending across departments and agencies by the fiscal 2026-27 year, resulting in $7 billion of savings over four years starting in 2024-25, and another $2.4 billion “ongoing.” The government also says it will work with Crown corporations to meet similar reduction targets. Through a variety of cost-saving measures, Ottawa is expecting to reduce spending by $15.4 billion in all.

That belt-tightening could mean disappointment for CRA workers who think a big pay hike is all but a done deal. It seems clear that employees in the private sector need to dial down their expectations for raises amid cooling inflation, less severe labour shortages and a possible recession. Government staffers may find they need to do the same.

— Victoria Wells, senior editor, Financial Post, and FP Work editor 

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