After the tech bubble burst, the United States went into recession, but Canada did not. This isn't to say that we escaped entirely unscathed; there were some nervous moments, and the Bank of Canada saw fit to reduce its overnight rate target from 5.75% to 2.25% between January and November 2001. But if you look at the employment numbers, you only see a slowdown in the rate of growth:
But here's something I hadn't noticed before. If you look at real wages - both the average weekly earnings and the average hourly earnings series - then 2001 looks a lot worse, and the most recent recession doesn't look so bad:
While there was less in the way of job losses in 2001-02, real wages fell sharply. In contrast, the sharp fall in employment in 2008-09 didn't seem to slow down the trend in real wage growth we've been seeing since 2003. More people lost their jobs this time around, but those who kept their jobs saw real wage gains.
To what extent do those effects cancel out? Not entirely: here is a plot of the y/y growth rates of real total wages and salaries:
The job losses of the 2008-09 recession were strong enough to outweigh the gains being made by those who remained working. And workers' fall in buying power was worse than in 2001-02, but by a margin much less than what the employment numbers would suggest.
So why did real wages fall in 2001-02 and not in 2008-09? My first reaction was that since the 2008-09 recession was more severe and since the Bank of Canada had reached the lower bound, disinflation boosted real wages. In 2001-02, inflation stayed higher, this keeping real wages down.
But that's not what happened:
In 2008-09, the growth rates of prices and of nominal wages slowed, but nominal wage growth generally stayed just above that of prices. Bit in 2001-02, nominal wages fell sharply - more sharply than in 2008-09 - while inflation stayed near the Bank's target. So the fall in real wages was generated by a fall in nominal wages, not an increase in prices.
Several questions suggest themselves:
- Why did nominal wages fall so fast in 2001-02?
- Would the recent recession have been less severe if we had been able to engineer a similar fall in nominal wages?
- Why didn't it happen?
- Isn't it supposed to be hard to reduce nominal wages?
And probably many more. Answers - and answers to even more interesting questions - are welcome in the comments.