COVID-driven exodus out of big cities could fuel wage inflation, experts warn

Click to play video: 'Why living in a big city for a higher salary may not pay off' Why living in a big city for a higher salary may not pay off
With many people working remotely due to the COVID-19 pandemic, employees are considering moving away from big cities to smaller towns with more affordable housing options. Economist and McDonald Laurier Institute Senior Fellow Linda Nazareth says corporations may be tempted to reduce pay for employees who live in a lower-cost jurisdiction, but the tight labour market may hinder their ability to do that as they compete for talent. Anne Gaviola has the details – Oct 16, 2021

A pandemic-driven exodus of young families out of Canada’s largest cities has depleted a core age group of workers from the already tight labour market, which experts say risks accelerating wage inflation in certain industries.

Leading the rush out of Canada’s big cities were children under 10 and millennials, or young families, Reuters analysis of official data shows, many who moved to smaller cities or rural areas in search of more space to live and work.

The drive-until-you-qualify trend has shifted mid-career workers – a key segment of the labor force – out of big cities, making it difficult to find established talent in sectors where in-person work is essential or preferred.

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“That’s a whole sort of cohort of workers missing,” said Mike Moffatt, an economist and senior director of the Smart Prosperity Institute. “You’ve got the sort of entry level people, but that middle, people in their 30s and 40s, they’re moving out.”

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Intraprovincial migration data from the federal government released last month shows 64,000 people left Greater Toronto for smaller locales within their own province from 2020 to 2021, while Greater Montreal lost 40,000, a sharp acceleration of an existing trend. Vancouver lost 12,000 people.

The rush was sparked by young families. Toronto lost some 15,00 children under 10 from 2020 to 2021, along with 21,000 adults between 25 and 44, the data shows. At the same time populations surged in smaller cities past Toronto’s outer suburbs.

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Driving the shift was home price and type. Half of Toronto’s home sales are condos and the average price is C$1.2 million ($946,074). In smaller cities outside Greater Toronto, a typical home is detached and costs under C$800,000.

Indeed, the race for space has led to faster price gains outside Toronto and its suburbs than within.

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Back in the big cities, the very tight labor market has forced employers to offer higher wages to lure workers. That is sparking rapid wage escalation, as companies compete for the skills they need. Recruiting firm Robert Half said 46 per cent of companies are increasing starting salaries to attract talent.

“People are leaving (jobs) today, because they’re being offered large packages to go elsewhere. That’s how that war for talent is right now,” said Koula Vasilopoulos, district director for Robert Half Canada.

The worry for the Bank of Canada is fast-rising wages could start driving inflation, which hit a 30-year high of 4.8 per cent in December, something that it says has not happened yet.

Read more: Why living in a big city for a higher salary may not pay off

“There could be this self-fulfilling cycle where we’ve had inflation running at a 30-year high now, so … employees start to ask for higher wages to compensate for that inflation,” said Stephen Tapp, chief economist at the Canadian Chamber of Commerce.

“That increases labour costs, that increases the cost of output and that further drives the inflation spiral.”

Many big city employers are offering fully remote or hybrid roles in order to tap into the talent that fled the big cities during the pandemic. Recent data from Statistics Canada found a quarter of Canadians now work exclusively from home.

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“Canadian employers are deathly afraid to require people to come back to office jobs for fear they’re going to lose people all together,” said Dan Kelly, president of the Canadian Federation of Independent Business.

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But remote does not work in the industries with the most critical shortages – warehousing, retail, manufacturing and education and healthcare. Filling those jobs, particularly as more people trade in tiny downtown condos for far-flung detached homes, remains an expensive challenge.

“It’s a whole spectrum of labour, from the barista right up to the hospital workers,” said Andy Yan, director of Simon Fraser University’s City Program.

“It’s going to be a struggle, particularly for small businesses, but even big businesses. How do you get the talent if housing is so disproportionate to incomes,” he said.

($1 = 1.2684 Canadian dollars)

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(Reporting by Julie Gordon in Ottawa Editing by Alistair Bell)

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