I

ndustrial

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elations

, Vol. 47, No. 4 (October 2008). © 2008 Regents of the University of California Published by Blackwell Publishing, Inc., 350 Main Street, Malden, MA 02148, USA, and 9600 Garsington

Road, Oxford, OX4 2DQ, UK.

591

Blackwell Publishing IncMalden, USAIRELIndustrial Relations: A Journal of Economy and Society0019-86760019-8676© 2008 Regents of the University of CaliforniaXXX Original Articles

Are Canadian Salaried Workers Missing?

M

ike

S

hannon

Canadian Evidence on the Hourly Paid–Salaried Breakdown: Are Canadian

Salaried Workers Missing Too?

MIKE SHANNON*

Hamermesh (2002) documents the unexpected rise in the share of Americanworkers paid by the hour. This paper uses establishment data to show that aneven larger increase occurred in Canada. The Canadian increase cannot beexplained by changes in industry composition or by changes in worker and jobcharacteristics. It appears that Canadian salaried workers have also “gonemissing,” adding to Hamermesh’s puzzle and suggesting that a satisfactoryexplanation should fit both American and Canadian experiences.

Introduction

I

n

his article

, “12 M

illion

S

alaried

W

orkers

A

re

M

issing

,” H

amermesh

(2002)

documents

the rise in the share of American workers paid by thehour. Hamermesh observes that this increase is surprising in that hourly payis associated with blue-collar and less-skilled jobs, so that increases in theskill level of the workforce and trends in employment by industry andoccupation should surely have decreased the share paid hourly. Yet this isnot what Hamermesh or Haber and Goldfarb (1995) find for the UnitedStates. In Canada, roughly one-half of employees are paid by the hour.Interestingly, the share of workers paid by the hour has also been rising inCanada. This paper documents and analyzes this increase in the hope thatthe Canadian experience will shed additional light on this phenomenon.

Data Sources

The main source of Canadian data on the share of workers paid hourlyis the Business Payrolls Survey (formerly the Survey of Employment,Payrolls and Hours [SEPH]), which asks surveyed employers to report

* Mike Shannon is an associate professor at the Department of Economics, Lakehead University,Thunder Bay, Ontario, Canada. E-mail:

mike.shannon@lakeheadu.ca

.

592 / M

ike

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hannon

employment for the week prior to the survey, broken down by hourly, salaried,and other pay status. The resulting data are made available by detailedindustry and region. Although a version of the survey has existed since the1920s, comparability over time is hampered by changes in survey coverage,industry classifications, and the range of variables reported. These problemsrestrict most comparisons in this paper to the periods 1983–2000 and 1991–2005. During the first of these periods, the 1980 Standard IndustrialClassification (SIC) was used to classify employers, while the latter periodused the North American Industry Classification System (NAICS).

1

Dataon the share paid hourly for the 1966–1982 period are presented for Mining,Manufacturing, Construction, and Accommodation and Food Services, butas mentioned in footnote 1 comparability with post-1982 data is limited.

There is no Canadian household survey that provides regular, ongoinginformation on whether workers were paid hourly. The 1995 Survey ofWork Arrangements (SWA) did ask whether work was paid by the hour,

2

and it is possible to use the estimated relationship between hourly paystatus and personal and job characteristics from the SWA and LabourForce Survey (LFS) data on personal and job characteristics to projectshares of those paid hourly and, therefore, gain some insight into the factorslying behind recent trends.

Canadian Trends in the Share of Workers Paid by the Hour

Figure 1 illustrates basic trends in the May

3

share of employment paidhourly, by salary and in other ways, for the industrial aggregate using the1980 SIC definitions for 1983–2000 and the NAICS industry definitions for1991–2005. The figure shows that a substantial share of Canadian workersis paid by the hour throughout the period covered. The diagram also showsa large increase in the share paid hourly: 46.7 percent in 1983 to 53.0 percentin 2000 using the 1980 SIC data, and 47.9–53.5 percent for 1991–2005 usingthe NAICS industrial aggregate. Interestingly, these increases are considerably

1

Survey changes in 1983 extended coverage to smaller employers limiting comparability with the pre-1983 period. However, the hourly salaried breakdown was still collected using the same employer surveyapproach albeit on a smaller sample of roughly 11,000 firms (vs. 70,000 at its maximum).

2

The Labour Market Activity Survey (1986–1990), the Survey of Union Membership (1984), andthe Survey of Work History (1981) record whether the wage questions were answered by reporting wageshourly, weekly, monthly, etc. This can provide some information on hourly pay status given that hourlypaid workers are more likely to report pay on an hourly basis. As discussed in a later footnote, this typeof data was used in a supplementary exercise.

3

Trends are similar for other months. The share paid hourly is typically highest in August and lowestin January or February.

Are Canadian Salaried Workers Missing?

/ 593

larger than the increases of 2.2 percentage points (men) and 2.5 percentage points(women) documented by Hamermesh for the United States over the period1979–1997.

Figure 1 also shows that the share in the residual “other” category ofemployees (paid neither hourly nor by salary) also grew over the period atthe expense of the salaried share.

4

This is of some interest as the increase inthe hourly and residual shares may be related.

A Break with Longer-Term Trends?

Assessing whether the post-1983 trendrepresents a break with the past is hampered by changes in the employersurvey in 1982. Limited evidence for a narrow range of industries is,however, available for the period 1966–1982. Figure 2 draws on these datato produce shares paid hourly for Mining, Manufacturing, Construction,and Accommodation and Food Services for the period 1966–1982 withindustry definitions based on the 1960 SIC. In three of the four industries,the share paid hourly declined steadily and substantially in 1972–1982,while in the remaining industry (Accommodation and Food) this share wasflat after rising sharply in 1968–1972. For comparison purposes, the figure

4

The residual group will include those paid by commission or by piece rate. As the bottom line inFigure 1 shows, it grew from roughly 4 percent in 1983 to 11 percent in 2005.

FIGURE 1

Shares Paid Hourly, by Salary or in Other Ways (1983–2005)

594 / M

ike

S

hannon

also reports 1983–2000 data for the same industries using the 1980 SIC.

5

These data suggest that the downward trend found in three of the fourindustries ended after 1983, while in Accommodation and Food Servicesthe hourly share remained flat initially, rose through much of the early1990s, and then fell back. The results for this limited range of industries areconsistent with the interpretation that recent trends represent a break withthe past; however, none of the four industries show the kind of sharp risein the hourly share seen in Figure 1.

Why Did the Share of Canadians Paid by the Hour Rise?

Is the rise in the share of Canadian workers paid hourly surprising? Toanswer this question, the paper asks (1) whether the rise in Canada can beexplained by changing industry composition, and (2) whether the increasecould have been predicted using the estimated 1995 relationship betweenpersonal and job characteristics and hourly paid status.

5

The 1966–1982 series in the figure is drawn from Statistics Canada’s

Employment, Earnings andHours

(1971–1982) and Dominion Bureau of Statistics’

Employment and Average Weekly Wages andSalaries

and

Man-Hours and Hourly Earnings

(1966–1970). There is a jump downwards in the hourlyshare for each industry between 1982 and 1983; this reflects the expansion in survey coverage to smalleremployers and the change from the 1960 to the 1980 SIC.

FIGURE 2

Industry Trends in the Share Paid Hourly (1966–2000)

Are Canadian Salaried Workers Missing?

/ 595

The Effects of Changing Industry Composition: A Shift-Share Analysis.

The SEPH data do not provide information on worker characteristics butdo identify industry of work. This allows some examination of theevolution of shares of workers paid hourly by industrial sector. Table 1 presentsshares paid hourly for nineteen industry categories for the years 1983 and2000 based on the 1980 SIC. These shares vary substantially by industry in2000, with levels above 70 percent in some industries (Accommodation andFood Services, Health and Social Services, Retail Trade, and Construction)and levels as low as 2.1 percent in Educational and Related Services,15 percent in Government Services, and 20.8 percent in Finance and Insurance.

The data in Table 1 further show that increases in the share paid hourlywere not uniform across industries. Increases of over 10 percentage pointsare found for Health and Social Services, Communications and Other Utilities,Finance and Insurance, Wholesale Trade, Real Estate and Insurance, andAmusement and Recreational Services industries. The increase in the hourlyshare for Government Services is also above average. Smaller increases inthe hourly share are found in Retail Trade, Construction, Manufacturing,and the remaining service industries. The share was nearly unchanged inEducation while three industries saw declines in the share paid hourly:Logging and Forestry, Transportation and Storage, and Mining. Comparisonswith more detailed 1980 SIC industry categories (213 industries) can alsobe made using SEPH data for 1983–2000. These reveal still more diversityin levels and changes in the share paid hourly.

It may be that interindustry employment shifts in favor of industrieswhere the share paid by the hour is high can account for the rise in theoverall share paid hourly. A shift-share analysis was performed to give someidea of the importance of this factor using the same nineteen-industryclassification used in Table 1.

6

This exercise suggests that of the 6.3-percentage-point rise during 1983–2000 in the share paid hourly, only 0.7–0.8 percentage pointwere contributed by changes in industry employment shares, with theremaining increase attributable to the rise in the share paid hourly withinindustries. An increase in the employment share of Accommodation andFood (where the share paid hourly is especially high) and a decline in theemployment share of Government Services (where the hourly paid share is

6

Let

w

j

,

i

be the share of employment in industry

i

in year

j

and

hs

j

,

i

be the share paid hourly inindustry

i

in year

j

, then the shift-share exercise involves taking the economy-wide change from 1983 to2000 in the shares paid hourly:

Σ

i

w

00,

i

hs

00,

i

–

Σ

i

w

83,

i

hs

83,

i

and decomposing it into components due to achange in the industry weights (

w

00,

i

–

w

83,

i

) and a component due to changes in the hourly paid sharesby industry (

hs

00,

i

–

hs

83,

i

). This decomposition can be calculated in two ways: (1)

Σ

i

(

w

00,

i

–

w

83,

i

)

hs

00,

i

+

Σ

i

w

83,

i

(

hs

00,

i

–

hs

83,

i

), and (2)

Σ

i

(

w

00,

i

–

w

83,

i

)

hs

83,

i

+

Σ

i

w

00,

i

(

hs

00,

i

–

hs

83,

i

). The range in the share due to inter-industry shifts reported in the text is due to the use of these two different versions of the decomposition.

596/

M

ike

S

ha

nn

on

TABLE 1

S

hare

P

aid

Hourly by Industry (1983 and 2000)

Share paid hourly Employment shares

1983 2000Change

1983–2000 1983 2000Change

1983–2000

Industrial Aggregate 0.467 0.530 0.063 1 1Logging and Forestry 0.461 0.383 –0.077 0.007 0.005 –0.002Mining, Quarrying, and Oil Well 0.475 0.465 –0.010 0.017 0.012 –0.005Manufacturing 0.645 0.663 0.018 0.186 0.166 –0.020Construction 0.674 0.708 0.034 0.046 0.048 0.002Transportation and Storage 0.479 0.456 –0.023 0.052 0.043 –0.009Communication and Other Utility 0.248 0.377 0.129 0.038 0.032 –0.006Wholesale Trade 0.336 0.453 0.117 0.056 0.067 0.011Retail Trade 0.677 0.721 0.044 0.122 0.120 –0.002Finance and Insurance 0.083 0.208 0.125 0.047 0.044 –0.003Real Estate Operator and Insurance Agent 0.193 0.296 0.104 0.015 0.016 0.000Government Service 0.062 0.150 0.088 0.074 0.056 –0.018Business Service 0.354 0.379 0.025 0.045 0.078 0.033Educational and Related Services 0.018 0.021 0.003 0.085 0.080 –0.005Health and Social Service 0.643 0.799 0.155 0.097 0.101 0.004Accommodation, Food, and Beverage Service 0.801 0.819 0.018 0.065 0.074 0.008Amusement and Recreational Service 0.596 0.699 0.103 0.015 0.020 0.005Personal Services (excluding Household Services) 0.487 0.539 0.052 0.008 0.010 0.002Membership Organization 0.404 0.466 0.061 0.010 0.010 0.000Other Service 0.566 0.617 0.051 0.017 0.021 0.004

Source: Survey of Employment Payrolls and Hours. All data are for May 1983 or May 2000. Industry classifications are based on the 1980 Standard Industrial Classification.

Are Canadian Salaried Workers Missing? / 597

low) helped push up the share paid hourly while increases in the share ofemployment in Business Services and Wholesale Trade and the decline inthe employment share in Manufacturing worked in the opposite direction.

Redoing the shift-share exercise using the more disaggregated 213 SIC1980 industry classification suggests an even smaller role for interindustryshifts (i.e., they explain only –0.2 to 0.2 percentage point).7 Similar decom-position exercises using the NAICS industry classifications for the period1991–2005 reach similar conclusions.8 It appears that changing industrycomposition cannot explain the rising share of the workforce paid by the hour.9

What Else Can the Canadian Data Tell Us? Correlations using the dis-aggregated industry data just discussed show that the change in the shareof workers paid by the hour during 1983–2000 was largest in industrieswhere this share was low in 1983 and in industries with low hours-per-weekand low pay in 1983. Estimates also show that the increase in the hourlyshare tended to be higher in industries with higher growth in employment,average hours, or wages. These latter correlations suggest that sectors withstrong growth in labor demand may account for a disproportionate amountof the rise in the hourly share.

Examination of how the hourly share evolved for individual disaggre-gated industries reveals much diversity. Roughly one-quarter of the 213industries saw declines in the share paid hourly during 1983–2000, whileamong those experiencing increases, both the size and time pattern of therise varied substantially. Furthermore, industries with large increases werethemselves quite diverse. This diversity suggests that a single explanation isunlikely to explain the overall trend.

7 With disaggregated industries the most important employment share declines in industries with anabove-average share paid hourly were in Railway and Related Industries (–0.6), Gasoline ServiceStations (–0.4), General Retail (–0.9), and Hospitals (–1.0). The largest shifts in employment towardbelow average hourly paid share industries occurred in Telecommunications (0.4), Computer andRelated Services (1.1), and Architectural, Scientific, and Technical Services (0.6). These two sets of shiftspushed down the economy-wide share paid hourly. The largest increases in the employment shares inindustries with above-average shares paid hourly occurred in Food Services (1.1), Employment Agenciesand Personnel Suppliers (0.7), Management Consulting (0.4), and Trades Contracting (0.4). Finally, thelargest declines in industries with low shares paid hourly happened in Federal Government Services(–1.0) and Provincial Government Services (–0.6).

8 At the time of writing, complete data on the number of hourly paid employees for 2005 were stillunavailable for some industry classifications. As a result, the NAICS exercise using aggregated industrycategories dropped Utilities and Management from the calculations. The NAICS results suggested thatonly 10–15 percent of the rise in the share paid hourly could be accounted for by industry shifts, whilethe remaining 85–90 percent was explained by rising hourly shares within specific industries.

9 A similar shift-share exercise also failed to explain the rise in the share paid neither by the hournor by salary. Of the 7.0-percentage-point rise during 1983–2000, only 0.1 was explained by changingindustry employment shares.

598 / Mike Shannon

Additional work used household data to ask whether the change in thefraction paid by the hour was a predictable consequence of changes inworker and job characteristics.10 All versions of this exercise suggest thatthe share paid hourly would have fallen had control variables changed asthey actually did while their effects on the likelihood of being paid by thehour remained unchanged. For example, the decline would have been6.9 percentage points in the base specification versus an actual rise of6.3 percentage points during the same period. Changes in educational attain-ment, age structure, occupation, and union status were the most importantfactors behind the projected fall.

The predicted decline in the share paid hourly is obviously at odds withthe increase that actually occurred. It appears that hourly pay has becomegenerally more common a finding consistent with the results of the shift-share exercise. Hamermesh obtained similar results for the United States(i.e., the actual share paid hourly rises even though the pattern of changingcharacteristics suggested that it should fall).11,12

Hamermesh’s U.S. Results and the Canadian Experience. For the most part,the Canadian results lend support to Hamermesh’s conclusions. Morespecifically, the projection exercises using household data support Hamermesh’s

10 Mimicking Hamermesh, the 1995 SWA data are used to estimate separate linear probability modelsfor men and women of the likelihood of being paid by the hour with age, education, marital status, full-time job status, and province acting as explanatory variables. Extended versions add union status,indicators of firm size, and industry and occupation controls. The estimated coefficients are then com-bined with Labour Force Survey data on average values of the explanatory variables to project sharespaid hourly for 1983, 1998, 2000, and 2005. This exercise gives some idea of how changing workforceand job characteristics would have altered the share paid hourly if the effect of these variables on theprobability of being paid hourly was the same in these other years as in the year for which the linearprobability model was estimated (1995). In performing this exercise, the sample is restricted to workersaged 15–69 years in order that age categories will be consistent between the SWA and the LFS. Thesample is further restricted to those working in paid jobs and not in industries excluded from SEPH.Projections were done for 1983 as it is the earliest year for which SEPH data were presented in Figure 1,while 1998 is chosen since it is the last year in which the LFS reported industry and occupation codesthat were comparable with those used in the SWA and so it is the last year in which industry andoccupation controls can be included in the projection exercise. Additional projections based on specificationswithout industry and occupation controls are done for 2000 and 2005. As the SWA was conducted inNovember 1995, all projections are done for November of the projection year.

11 A version of the projection exercise was also done based on linear probability model estimates fromthe 1986 Labour Market Activity Survey, albeit with a less direct measure of pay status (see footnote 2).The results were generally in accord with those based on the SWA.

12 There are parallels between the estimated effects of personal characteristics on hourly pay statusand those reported in Hamermesh’s table 4. Specifically, Hamermesh shows that education has a negativeeffect on the probability of being paid hourly. Furthermore, the age effects estimated from the Canadiandata are broadly consistent with the quadratic experience effects in Hamermesh’s estimates.

Are Canadian Salaried Workers Missing? / 599

conclusion that changes in workforce characteristics (age, education, maritalstatus, region, full-time status, and occupational distributions) cannot explainthe rising share of those paid hourly. Both these results and the shift-shareanalysis based on SEPH data further suggest that changing industrycomposition cannot account for the rise—a result also consistent withHamermesh. The pattern of changes in shares paid hourly by industry inTable 1 seem consistent with Hamermesh’s view that pressures from internationaltrade were not much of a factor behind the rise in the economy-wide sharepaid hourly.13 Hamermesh’s finding that the large decline in unionizationrates in the United States seemed not to be behind the trends also seemsconsistent with the Canadian experience. This conclusion is based on theeffects of holding union status constant in the projections based on householddata. There is one respect in which the Canadian situation casts some doubton one of Hamermesh’s conclusions; namely, the suggestion that the rise inthe share paid hourly may well be related to rising wage inequality. InCanada, the rise in wage inequality was much smaller than in the UnitedStates, yet the rise in the share paid hourly was larger.14

Explaining the Rise: Theoretical Perspectives

Goldfarb (1987), Fama (1991), and Haber and Goldfarb (1995) ask whyemployers may choose to pay positions by the hour rather than pay a salary.These discussions note that hourly pay provides workers with direct incentivesto avoid absenteeism and rewards high output and effort in jobs where theseoutcomes are closely related to hours of work. Given these incentive advantages,the literature suggests that hourly pay is most likely in jobs where hours,output, and effort are closely related while salaried status will be more likelyin jobs where these links are weak. Specifically, jobs involving routine physicaltasks with tangible, easily measurable output are likely to be paid hourlywhile mental and/or novel work with less tangible outputs are more likelyto be paid by salary.

Employment shifts in the past few decades from goods-producing industriesto services should lessen the incentive advantages of hourly pay. The exercisesabove suggest that interindustry shifts in employment are not important to

13 The share paid hourly rose most in industries where growing trade is unlikely to have been ofimportance (Health and Social Services and Finance and Insurance) but relatively little in a large,trade-sensitive industry like Manufacturing.

14 For example, tables 2 and 3 in Card, Lemieux, and Riddell (2003) show the variance of U.S. wagesrising from 0.289 in 1984 to 0.340 in 2001 for men (0.223 to 0.289 for women) while in Canada thecomparable figures for men were 0.231 in 1984 and 0.229 in 2001 (0.218 and 0.224 for women).

600 / Mike Shannon

the rising hourly share. This result is consistent with the theoretical story inthat shifts away from goods-producing industries and towards serviceswould not be expected to raise the share paid hourly. Rather, if the theoreticalview is correct, apparently something has worked to strengthen the link betweenhours, effort, and output within most industries.

Salaried work is often identified with greater prestige or status thanhourly paid work. In part this reflects the types of occupations in which thetwo types of pay are most common and perhaps the greater control thesalaried worker has over output and effort. Standard log-wage equationestimates using the 1995 SWA indicate that being paid an hourly rate isassociated with pay 12–13 percent lower after controlling for standard personaland job characteristics.15 One possible interpretation of this result is thatsalaried work may be associated with jobs that pay efficiency wages and,hence, pay a premium in order to provide incentives aimed at reducingshirking and/or turnover. If so, it may be that growth in the importance ofhourly pay is a response to a reduction in the types of incentive problemsthat the original efficiency wage was intended to address. Perhaps, for example,technological or organizational change in many workplaces has led to easiermonitoring, more routine work and this commoditization of former high-status jobs has allowed employers to move to cheaper hourly pay. This typeof story may also explain why the share of workers paid neither by the hournor by salary has grown. Another possibility is that hourly pay status ismerely capturing some other unmeasured characteristic of workers or jobsthat is negatively correlated with productivity and, hence, pay. If so, thisperspective would suggest that this characteristic (whatever it might be) hasbecome more common in recent years.

Conclusions

This paper has documented a rise in the share of workers paid by thehour in Canada since 1983 that is similar to that in the United States studiedby Hamermesh (2002). As in the United States, these patterns are unexpectedas they are at odds with projections based on 1995 SWA data and also seemto represent a break from past trends. Data limitations make it difficult tofully assess the reasons for the Canadian trends, but the available evidencesupports Hamermesh’s conclusions that changing worker and job characteris-tics do not explain the increase. In short, it appears that Canadian salaried

15 The log-wage equations included a dummy indicator of hourly pay status in addition to standardcontrols for education, age, union status, occupation, and industry.

Are Canadian Salaried Workers Missing? / 601

workers have also gone missing, adding to the puzzle originally posed byHamermesh and suggesting that a satisfactory explanation of the increasesshould fit both the U.S. and Canadian experiences.

References

Card, David, Thomas Lemieux, and Craig Riddell. 2003. “Unionization and Wage Inequality: AComparative Study of the United States, the UK, and Canada.” Discussion Paper 03–02.Vancouver, BC: Department of Economics, University of British Columbia.

Dominion Bureau of Statistics. 1966–1970. Employment and Average Weekly Wages and Salaries.Catalogue 72–003. Ottawa, ON: Queen’s Printer.

———. 1966–1970. Man-Hours and Hourly Earnings. Catalogue 72–003. Ottawa, ON: Queen’s Printer.Fama, Eugene. 1991. “Time, Salary, and Incentive Payoffs in Labor Contracts.” Journal of Labor

Economics 9(1):25–44.Goldfarb, Robert. 1987. “The Employer’s Choice of Paying Wages or Salaries.” Proceedings of the

Fortieth Annual Meetings (Chicago, Dec. 28–30, 1987). Madison, WI: Industrial RelationsResearch Association, 241–7.

Haber, Sheldon, and Robert Goldfarb. 1995. “Does Salaried Status Affect Human Capital Accumulation?”Industrial and Labor Relations Review 48(2):322–37.

Hamermesh, Daniel. 2002. “12 Million Salaried Workers Are Missing.” Industrial and Labor RelationsReview 55(4):649–65.

Statistics Canada. 1971–1982. Employment, Earnings and Hours 1971–1982. Catalogue 72-002. Ottawa,ON: Statistics Canada.