Unproductive Unionization: Labour and the Economy in Nova Scotia

The 2012 winter in Halifax was particularly bad, but not necessarily because it was cold. Instead, public transit workers engaged in strike action that lasted for six weeks in the middle of the winter and, despite earning much more than the average Canadian, demanded higher wages and better bonuses.

Public transportation is popular among students and low-income individuals who rely on it as a means of getting them to school or work and the strike displaced those riders. Once the strike ended, the Chronicle Herald conducted a survey and found that 42 per cent of voters were “still pretty angry” about the strike action, particularly because they felt that the strike demands were preposterous. (For example, the average salary of an HRM bus driver is $22/hour or $40,000, which is roughly 20-25 per cent higher than the median Canadian salary). The strike ended with a five-year renewal contract for $5.6 million ending in 2017, but there is chance that another strike will occur in the winter of that year.

Similarly, there have been several labour demonstrations and protests from the Nova Scotia Government and General Employees Union (NSGGE) and other unions representing the province’s healthcare sector, whom the essential services legislation–Bill 1 or the Healthcare Authorities Act–affected. These campaigners popularize their cause to gain support from the public by using emotional appeals such as “removing worker rights to strike = healthcare shortages.”

In the last few decades, union popularity has waned in the United States and to some extent in Canada, too, however, in Atlantic Canada, unions remain a powerful political force. In 2012, for instance, the Fraser Institute released a report on labour markets titled “Measuring Labour Markets in Canada and the United States,” which found that average unionized employment is 30 per cent in Nova Scotia and 39 per cent in Newfoundland and Labrador. (One of the reasons that report cited for these rates was the increase in public sector employment.)

Several studies show that unionization may discourage productivity rates, reduce employment prospects for new labour market entrants, and lower profits for private firms, the latter of which can affect business optimism. Economist Barry Hirsch, for instance, found that “market value and earnings [of firms] are estimated to be about 10-15 per cent lower in an average unionized company than in a nonunionized company, following extensive control for firm and industry characteristics” in his paper “Union Coverage and Profitability Among US Firms.” Furthermore, Tony Fang and John Heyword found that “the share of a plant’s workers covered by collective bargaining has a robust positive partial correlation with the probability of larger plants closing” in their paper “Unionization and Plant Closure in Canada.”

Removing worker rights in Nova Scotia does not cause healthcare shortages, but, rather, rigid government regulation that determines how many doctors and nurses to produce annually in the province does.  In fact, in many respects, there might be a correlation between union strength and labour shortages because those groups often restrict entry into a given sector. Moreover, affording employers the right to discard inefficient employees and hire more efficient replacements is a key component of building a dynamic labour market.

On the contrary, unionization can sometimes hinder labour market flexibility, as demonstrated in “Unionization and Input Flexibility in US Manufacturing, 1973-1996.” Ultimately, whereas some unions do protect worker rights, it is slightly misleading to argue that they protect the rights of every worker. Therefore, using that argument to gain public support can be deceptive. As economist Friedrich Hayek wrote, “It is one of the saddest spectacles of our time to see a great democratic movement support a policy that must lead to the destruction of democracy and that, meanwhile, can benefit only a minority of the masses who support it.”

Rinzin Ngodup is an AIMS on Campus Student Fellow who is pursuing a graduate degree in economics at Dalhousie University. The views expressed are the opinion of the author and not necessarily that of the Atlantic Institute for Market Studies

Minimum Wage, Minimal Effect

The minimum wage is a classic wedge issue in political discourse and both sides of the argument represent wider philosophical camps. Proponents claim the policy helps exploited members of the working poor and promotes economic equality. Opponents criticize, however, criticize the minimum wage for hampering voluntary exchange and decreasing employment and competitiveness.

Those who value economic equality and fairness should back away from this current discourse and ask whether a minimum wage actually advances their objectives.  In practice, minimum wages poorly targets those it aims to help and has a number of adverse unintended consequences.

The most common criticism of minimum wage laws goes as follows: according to the law of demand, increasing the price of something decreases how much it people choose to consume. When the cost of low-wage labour increases, therefore, firms respond by scaling back their use of said labour through lay-offs or cutting hours. Research conducted by Canadian academics supports this assertion.

Supposing, for a moment, that minimum wage does not increase unemployment in the short-term, it is, in any case, likely to increase unemployment in the long-term. Because employers have invested in employee training costs and because there are costs associated with relieving employees (i.e. severance), for instance, businesses are less likely to cut jobs the day a minimum wage increase is legislated.

If firms are compelled to pay their workers more, they will use more effective means of production as substitutes for domestic labour. Using these substitutes–like automation and outsourcing–means that companies employ less labour.

A decrease in employment, however, is not the only possible outcome. The concept of compensating differentials, for instance, posits that wages are not the only compensation workers receive or, in the very least, consider. Rather, workers may be happier with a lower salary in exchange for something else, such as benefits or a safer work environment.

Faced with higher mandatory wages, firms may be compelled to curb other labour costs. For instance, they could remove training opportunities, stop providing compulsory uniforms, or make the workplace less comfortable by, for example, paying less for utilities like heating and air conditioning.

Let us imagine that increasing the minimum wage boosts the income of those fortunate enough to earn a wage at all. Does the mandatory wage increase help low-income households?

Unlikely. Looking at the profile of Canadian minimum-wage earners, roughly 6% of employed Canadians (most of which are students) live with their families, about 60% work part-time, and half leave their job within a year. These employees, in other words, are largely dependents working temporary jobs and not the working poor who policymakers attempt to target with minimum wage legislation.

If boosting the salaries of the working poor is the objective, looking at policies that address severe underemployment–policies that, for instance, provide basic minimum incomes or increase access to education–is a much more suitable measure. The minimum wage, however, is a distraction disguised as a panacea. Unfortunately, increasing it does little but harm to those it seeks to help.

Michael Sullivan is a 2013-2014 Atlantic Institute for Market Studies’ Student Fellow. The views expressed are the opinion of the author and not necessarily the Institute

Bridging NL’s Urban/Rural Divide

Newfoundland and Labrador (NL), throughout history, has faced several economic impediments. The most famous of these impediments is the collapse of its cod fishery in the 1990s, which placed the viability of coastal communities in question. For instance, from 1991 to 2001 (following the federal government’s 1992 cod moratorium), NL’s rural population as a percentage of the province’s total population dropped 18%.

The primary driver behind the province’s rural population decline is a lack of employment. NL’s key economic determinants (and their jobs), for instance, are chiefly located in urban areas where employment opportunities are greater. Without taking proactive steps, this trend is likely to continue.

Although there is an emergence of specific industries, such as aquaculture, in NL’s rural areas, the biggest concern is the province’s ‘brain drain.’

Of those in rural communities whom choose to continue their studies, a large portion leave and few ever return home. This creates a vicious cycle, the result of which is a shortage of highly trained individuals in the province’s rural areas (thus, limiting innovation and constraining organizations that would otherwise consider operating rural communities).

There are, however, several potential solutions for reducing the gap between NL’s rural and urban communities and, subsequently, growing NL’s rural economies:

1)      Infrastructural development
2)      Labour market assistance
3)      Encouraging immigration

If you build it, they will come.

One potential solution for attracting new talent to the province is to advance research programs and build the additional capacity necessary for extending these programs into the province’s rural communities. The province, for instance, recently became an advocate for extending research and development (R&D) programs, incorporating entities such as the Research and Development Corporation (RDC), which “provides leadership, strategic focus and investments in order to strengthen and improve the research system throughout the province.”

Although it is unlikely that NL will become an R&D hub (like, for instance, Singapore), it is uniquely located for specialized studies, for instance, in aquaculture, Arctic relations, and natural resources development.

Furthermore, the provincial government is capable of improving its labour and immigration market. Firstly, tax-rebates afforded to companies that are establishing themselves can create jobs in the province’s rural areas and, secondly, escalating the province’s immigration recruitment strategy can provide capital for NL’s rural areas that have experienced population decline.

Although these initiatives are cost-intense, the current upkeep rate of NL’s rural infrastructure (and other government services) as a percentage of the province’s GDP is growing annually, requiring greater economic output. Bridging this gap is crucial, therefore, not only for sustaining NL’s current demands, but also for reaching the province’s full economic potential.

Tyler Power is a 2013-2014 Atlantic Institute for Market Studies’ Student Fellow. The views expressed are the opinion of the author and not necessarily the Institute