New study by the Broadbent Institute finds that wage gains in the grocery industry have been erased by inflation - amid record profits by grocers.
OTTAWA - Wage gains for grocery workers have been completely erased by inflation, according to a new report released by the Broadbent Institute.
The study, entitled Canadian Grocery Profitability: Inflation, Wages and Financialization and written by analyst Alex Purdye, finds that real wages in the grocery sector grew substantially from 2018 to 2020. In the following years, however, increases in the cost of living have erased those gains, returning wages to 2018 levels.
This erasure of real wages took place against a background of record grocery retailer profits. Unlike previous bouts of inflation, where rising labour costs - that is to say, wages - were blamed for increases in the price of consumer goods, workers’ wages do not factor into grocery price inflation at all.
Instead, as this report reveals, price increases are due to a phenomenon called “Seller’s inflation,” a phenomenon where cost shocks are passed on to consumers in order to protect a firm’s profit margin.
“In our inflationary era, workers’ wage demands, however just, have been a scapegoat for rising prices,” says Clement Nocos, Director of Policy and Engagement at the Broadbent Institute. “Our research shows that it’s the opposite. At least in the grocery sector, workers have seen their wage gains evaporate like everyone else, while their bosses took in record profits. It’s time to stop blaming workers and start calling for management to give them a better deal.”
Under the seller’s inflation model, prices surge following an initial cost shock - for example, a sharp increase in the cost of energy, or industrial inputs. Firms then pass these increases on to consumers, decreasing consumers’ buying power. Workers bargain harder in response - and to defend their newly fattened profit margins, firms raise prices even further, in an inverse of the traditional “wage-price spiral”.
The report finds that this framework applies to Canada: following initial spikes in energy and food production costs, workers saw declining real wages, even as firms saw their profits soar. It also finds that pressure from investors is a key driver of seller’s inflation: low-friction investment means that firms face pressures to deliver profit margins equivalent to firms in other sectors, or else see their investors leave. They secure these margins through reducing costs - including through workers’ real wages - as well as investing in productivity-enhancing technology, which can lead to reductions in working hours or even layoffs.
The report outlines three key recommendations to address seller’s inflation:
A windfall tax on excess profits, limiting industry’s ability to ‘normalize’ temporary price spikes and incentivizing either price reductions or wage increases
Implementing price controls as temporary, emergency stabilizing mechanisms during a supply crisis
- Strengthening organized labour to reduce firms’ ability to protect profits by reducing wages
“In 2023, political parties on the left and the right are competing over working-class votes, and over who can get workers a better deal,” concludes Nocos. “It’s time for them to implement these common-sense recommendations, and help restore a more sustainable cost of living for working people across Canada.”