Future government subsidies like the $14.4 billion bailout of auto giants GM Canada and Chrysler Canada in 2009 should be pegged to commitments from skilled workers to take wage cuts, according to a study by the Institute for Research on Public Policy (IRPP).
"While the one-time bailout of GM Canada and Chrysler Canada in 2009 was successful, ongoing subsidies to the auto sector must be reassessed, especially in times of fiscal restraint," said the study, entitled Bailouts and Subsidies: The Economics of Assisting the Automotive Sector in Canada.
The study by the Montreal-based think-tank, said the cost to taxpayers of not stepping in would have been even greater, estimated at some $20 billion in economic losses.
“Although Canada has fared relatively well in recovering from the recession of 2008-09, it is not likely to remain immune” from pressures for government support of industry, say the authors Leslie Shiell and Robin Somerville. “In such a climate, industrial subsidies are often seen as a simple and direct way to preserve jobs, but they seriously risk delivering less than they promise.”
GM and Chrysler Canada received government bailouts in the spring of 2009, as the auto giants were battered by the global financial crisis. As the bailout was being negotiated, Chrysler said in a letter to employees that its operations could not survive in Canada without significant concessions from workers.
The authors recommend that governments require competitive wages as a condition for subsidies to the auto sector. They argue that because auto workers earn a significant pay premium over similarly skilled workers in other industries, subsidies to the auto manufacturers are in fact supporting above-market wages. Furthermore, these subsidies must be financed by taxpayers, many of whom earn significantly less than auto workers.
In a commentary, Jim Stanford of the Canadian Auto Workers (CAW) disagrees vigorously with the notion that wage concessions should be a precondition for auto subsidies. Auto-sector wages in Canada are comparable to those in the United States and other countries, he said.
“The wages are justified because of the worker’s contribution to productivity. Trying to cut wages in the name of attracting investment would be self-defeating,” said Stanford.
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