Frustrated that prices are rising much faster than your wages seem to be?
You have every right to be, according to a new study from the Canadian Center for Policy Alternatives.
The study, authored by CCPA senior economist David Macdonald, finds that as the Canadian economy recovers from the ravages of the COVID-19 pandemic, runaway inflation has been a boon to corporate profits. companies, while workers see their purchasing power diminish further.
“High inflation rates, especially this time around, have protected corporate profits, not eroded them. And it came at the expense of workers’ wages,” MacDonald said in an interview.
Coming out of the COVID-induced recession, corporate profits are an even larger share of the Canadian economy than before COVID, Macdonald said. Workers’ wages, meanwhile, make up a smaller portion of the country’s gross domestic product.
In the fourth quarter of 2019 – the last before COVID spread across the world like wildfire – corporate profits were 12.4% of GDP. By the first quarter of 2022, that figure had risen to 15.2%. That’s a jump three times greater than any other post-recession profit increase in the past 50 years, Macdonald said. Wages for workers, meanwhile, fell from 51 percent of GDP to 50.2.
While economists traditionally say that rising wages are a key driver of inflation, Macdonald argues that rising corporate profits should be the cause.
“There is very little discussion about this spiral of profits and prices. We focus on wages, and workers have nothing to do with it – they are way behind,” Macdonald said.
“The workers are behind the eight ball. They don’t see wage increases close to the rate of inflation. Can you imagine a worker going to his boss and saying, “I want a 7% raise”? They won’t get it. But that’s what they need, just to stay tied. (In April, the consumer price index — a general measure of inflation — was 6.8% higher than a year earlier, according to Statistics Canada.)
The report provides a measure of vindication for workers who are constantly told their demands for wage increases could bankrupt businesses and ruin the economy, said Deena Ladd, executive director of the Workers Action Center.
“The staggering rate of corporate profits is the problem, but low-wage workers are constantly being told that if they ask for a pay rise, they will increase inflation,” Ladd said. “So many times we are told that workers are to blame for inflation. This report shows that is simply not true.
Profits have grown particularly rapidly in sectors dominated by a handful of companies, Macdonald said, citing the food retail industry in particular, as well as the food processing sector.
The rise in profits was not a huge shock to Sohaib Shahid, director of economic innovation for the Conference Board of Canada, an economic think tank. After two years of a global pandemic, companies are eager to see the money flow again.
“There’s been a lot of accumulated consumer savings, and companies know that, so they feel more free to raise prices than they usually would,” Shahid said.
Another factor allowing companies to raise prices, Shahid said, is that COVID has hammered competition in many sectors.
“The COVID recession has really diminished a lot of the competition by putting some businesses out of business. And less competition means companies have more freedom to raise prices,” said Shahid, who agreed the CCPA report highlights a cause of inflation that isn’t talked about often enough.
“I think there hasn’t been enough discussion about corporate earnings contributing to inflation. It’s one of many causes, but it’s really not discussed much,” Shahid said.
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