Canada’s economy showed modest growth in the second quarter of 2024, with real GDP increasing by 0.5%. However, a closer look at the data reveals that a significant portion of this growth can be attributed to rising government wages and spending.
Government expenditures rose 1.5% in the quarter, primarily due to increases in employee compensation across all levels of government. This surge in public sector wages has become a key driver of economic growth, as private sector wage growth has cooled in comparison.
The trend of public sector wage growth outpacing the private sector is not new. A Desjardins report from July 2024 highlighted that while business sector wage growth increased by 3.4% in the first quarter, non-business sector wage growth jumped by 8.4%.
This disparity has led to a situation where federal public servants are among the highest-paid workers in Canada. Between January and May 2024, those in federal public administration earned an average of $45 per hour, significantly above the overall public and private average of $35 per hour.
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The expansion of the public sector workforce has also contributed to this trend. Since 2019, public sector employment has grown by 17%, compared to just 4% in the private sector. This has shifted the ratio of private to public sector workers from 4:1 in 2019 to 3.5:1 in 2024.
While government spending has boosted GDP figures, some economists warn that this may not be sustainable in the long term. The Fraser Institute notes that despite increased public sector employment and compensation, there’s little evidence that this has translated into better services or improved living standards for most Canadians.
Information for this story was found via Statistics Canada and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
