Canadian Politics from Canada's Centre

Friday, April 21, 2006

NAFTA's Impact on Canadian GDP and Wages: Research Commentary

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Here is the next part in my analysis of NAFTA's impact on Canadians. If this is your first time reading, you might be interested in looking at the research findings summaries I wrote earlier. In this case, NAFTA's effects on Canadian GDP and NAFTA's impact on Canadian wages and remuneration would be of interest. That said, here's my analysis and commentary offering an explanation of the findings.

There is little to say about the growth of the GDP, if only to contrast it to the growth (or lack thereof, depending on one’s source) of Canadians' incomes. GDP has grown by an average of 3% since the implementation of NAFTA, yet incomes have only grown by an average 1% annually, if we accept the OECD's assumption that all of a business' costs with regards towards its workers should be considered as remuneration. It should be noted, therefore, that most of the new economic wealth, which is accumulating faster since NAFTA, is not benefiting Canadians. If it were, their average salaries would be growing at the same pace as GDP, i.e. 3% annually. Rather, businesses operating in Canada, and the Canadian government, are seeing the rewards of such growth (which partly explains the government's surpluses, as well as increased NSR). This is the optimistic scenario: one third (1%/3%) of new wealth is going to Canadians.

That scenario is dependent on accepting the OECD's assumption, however. The difficulty with the OECD's assumption that all costs per employee are remunerative is that firms might tabulate into such "remuneration" other costs, such as stationary, electricity and other miscellaneous costs that do not pay employees. Motivation for this over-accounting of costs could easily be found in tax laws, where tax breaks would be tied to costs of employment. Furthermore, even if we accept that the accounting was honest, the 1% annual increase is an average. While the 1% could mean everyone getting 1% more a year, it might also mean that top executives are getting a larger share of the payroll. In short, the information on average incomes out there is inconclusive; both of the principal current methods of accounting being severely limited. Both the OECD's findings and the VIF's findings should be taken with a grain of salt (perhaps a pound of salt would be better?) when it comes to average incomes.

Related articles:
Remuneration and Wages in Canada since NAFTA
Canadian Unemployment since NAFTA
Canadian Savings Rates since NAFTA
Canada's GDP and GDP per capita since NAFTA

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