Analyzing Wage Growth Trends in the United States and Canada

As the global labor market continues to move beyond the turbulence of the post-pandemic years, wage growth reflects the interplay of numerous regional and economic forces. With inflation easing in many countries, ongoing labor shortages, demographic shifts, rising productivity and changing trade relationships are pushing wages upward — even as geopolitical uncertainty, tariffs and currency fluctuations inject fresh variability into labor costs.

Wage growth in both the United States and Canada moderated in 2025 as labor markets moved further away from the post-pandemic volatility of prior years. While economic conditions softened and growth was uneven across sectors and regions, wages continued to rise, supported by persistent labor supply constraints, productivity gains and inflation remaining above central bank targets.

At the same time, shifting trade dynamics, tariff impacts and currency movements introduced new sources of uncertainty that influenced hiring and compensation decisions differently across the two markets. The following sections examine wage growth trends across the US and Canada in 2025, with a focus on sector performance, labor dynamics and implications for real wage growth in 2026.

Wage Growth Trends in the US

Over the course of 2025, US average hourly earnings for all employees grew by 3.7%, down from 4.5% in 2024. While the US labor market and overall economic growth softened in 2025, wages continued to rise, driven by three primary factors:

1. Demographic Shifts

The civilian labor force grew by 1.8% in 2025, however, much of that growth occurred in January. From February through December, labor force growth slowed to just 0.5%. When combined with elevated retirement levels and an unemployment rate below historical averages, labor supply constraints persisted throughout the year.

2. Increasing Productivity

Prior to the pandemic, productivity gains were modest. During the pandemic, productivity accelerated as organizations automated processes and redesigned work. This trend continued in 2025 and was further amplified by AI adoption, enabling workers to operate more efficiently and support higher wage levels.

3. Inflation

Inflation remained above the Federal Reserve’s 2% target in 2025. As long as the price levels stay elevated, wage growth pressures are likely to persist as workers seek to maintain real purchasing power.

A Look at AGS' Major Labor Categories in the US

By industry, the strongest wage growth in 2025 occurred in IT (5%), retail trade (4.8%) and durable goods manufacturing (4.7%). The weakest wage growth was observed in mining/logging (2.3%), private education and health services (2.6%), and transportation and warehousing (3.3%).

• IT/Technology: Wage growth rebounded in 2025, with median weekly earnings growing 4.7%, driven largely by increased demand tied to AI-related investments. While labor demand declined in 2024, hiring picked up in 2025 as sector-specific unemployment rates fell.
• Light Industrial: Light industrial experienced the second-highest wage growth, with median weekly earnings rising 4.3% in 2025, up from 2.9% in 2024. Wage growth persisted despite job losses across manufacturing and transportation/warehousing. This labor category continues to face long-term workforce declines. Wage pressures may extend into 2026 as tariffs spur US manufacturing investment, even as increased costs weigh on the sector.
• Engineering: Wages increased 3% in 2025, down from 4.9% in 2024. Layoffs in manufacturing, particularly within automotive, tempered wage growth. Like light industrial, engineering demand could strengthen in 2026 if announced manufacturing investments materialize.
• Professional Services: Professional services rebounded in 2025, with median weekly earnings rising 3%, compared to -5.8% in 2024 and 10% growth in 2023. While hiring activity remained subdued, wage volatility appears to have moderated. Wage growth may continue in 2026 if AI augments worker productivity, however, broader worker displacement could dampen future wage growth.
• Scientific/Healthcare: Earnings declined 1.4% in 2025, following 4.5% growth in 2024. Scientific roles were pressured by slower growth in life sciences due to regulatory challenges and declining drug prices. Healthcare job growth remained strong but was concentrated in lower-wage nursing and care facility roles compared to prior years.

Real wages grew by 1% in 2025, unchanged from 2024. Inflation averaged 2.7%, remaining above the Federal Reserve’s 2% target, though down from 2.9% in 2024. Inflation is expected to remain elevated above target in 2026 as interest rate cuts take effect and the impact of tariffs continues to flow through the economy at varying points in time. Higher inflation, continued productivity gains, and shifting demographic dynamics are expected to remain key drivers of wage growth in 2026.

Canadian Wage Growth Trends

Canadian average hourly wages increased by 3.4% in 2025, slowing from 4.4% growth in 2024. Like the US, Canadian economic growth was uneven throughout the year, driven largely by changes in global trade relationships. Despite volatility, the Canadian labor market has largely stabilized.

The industries experiencing the strongest average hourly wage growth in 2025 were:

• Education, legal, social, community and government services: 6%
• Manufacturing and utilities: 4.6%
• Business, finance and administration: 4.6%

Sectors with the weakest wage growth include:

• Natural resources and agriculture: 0.2%
• Art, culture, recreation and sport: 2%
• Trade and transport: 3.9%

A Look at AGS’ Major Labor Categories in Canada

Across Allegis Global Solutions’ labor categories, average hourly wages within Temporary Help Services grew more slowly in 2025 compared to 2024, increasing 2.8% versus 5.8% the prior year. Economic uncertainty and a stabilizing labor market contribute to this slower wage growth.

• Engineering: Wages rebounded in 2025, with average hourly earnings increasing 5%, up from 0.5% in 2024. While US tariffs continued to weigh on manufacturing sector growth, the sector remained resilient, supporting renewed wage momentum for engineering roles.
• Light Industrial: The light industrial labor category experienced the second highest wage growth in 2025 at 4.6%, up from 3.8% in 2024. Like engineering, these roles were impacted by tariff-related uncertainty but were able to weather the disruption.
• Professional Services: Wages increased 4.6% in 2025, marking the third-highest growth rate among labor categories. Strong momentum from 2024 (4.3%) carried into 2025 as demand for professional services talent continued to expand.
• Health/Life Sciences: Wage growth reached 4.2% in 2025, accelerating from 2.4% in 2024. Increased healthcare spending, with Canada allocating 12.7% of GDP to healthcare in 2025, up 0.3 percentage points from 2024, supported stronger wage growth across this labor category.

Canadian real wages increased by approximately 1.3% in 2025, down from roughly 2.0% growth in 2024. Annualized inflation declined by 0.3 percentage points compared to the prior year. However, the inflation outlook for 2026 remains uncertain as trade relations between Canada and the US continue to shift. This ongoing volatility introduces uncertainty and drives higher costs through the economy at different points in time.

The Canadian Dollar also appreciated against the US dollar in 2025, narrowing the cost advantage of hiring in Canada relative to the US. Amid heightened uncertainty and mixed economic growth, wage growth in Canada is expected to moderate in 2026, increasing at a slower pace than in 2025.