Booming Canadian economy masking labour trouble: report

The Fraser Institute says minimum wage, unionization rates are too high and country is too reliant on public-sector employment
||Last Updated: 09/08/2003


anada’s robust economy is masking serious problems in the country’s labour sector, according to a new study by The Fraser Institute, a pro-business think tank based in Vancouver.

The study looked at labour market performance in Canada and the United States, and came down hard on Canadian policies that it said put the country at a competitive disadvantage.

It blamed Canada’s national unemployment system, high public-sector employment, high unionization rates and high minimum wages for putting most of the provinces behind their American counterparts when it comes to how labour markets have performed over the last five years.

“The ultimate goal of a well-functioning labour market is higher wages for workers, more employment opportunities, lower unemployment and higher levels of productivity,” said Jason Clemons, the Fraser Institute’s director of fiscal studies and co-author of the study. “Examining the study will give Canadians a clear picture of the reforms required.”

The reforms called for in the study include:

Reducing public-sector employment.

All of the provinces fare poorly with high levels of public-sector employment. Newfoundland and Labrador had the highest level among all 60 jurisdictions with 22.7 per cent of total employment in the public sector. That’s more than double the rate of Pennsylvania, which had the smallest percentage of its workforce in the public sector. The report said high public-sector employment has a “deleterious” economic effect.

Reducing unionization rates.

The study shows Canada is a much more unionized country than the U.S. In 2002, 32.2 per cent of Canadian employees were unionized while only 14.6 per cent were unionized in the U.S.

“The economic effects of high unionization rates are clear,” said Clemons. “Unionized firms perform worse than non-unionized firms on productivity growth, investment growth, employment creation and profitability.”

More flexibility in labour relations law.

All Canadian provinces require improvements in their labour-relations laws, the report said. Specifically, provinces would be well served to introduce some type of worker-protection laws and establish more balance with respect to successor rights. In addition, some provinces, in particular Saskatchewan and Quebec, maintain unbalanced certification and decertification regulations. Other areas for improvement include the treatment of technology, third-party picketing and the use of replacement workers.

Reduce power of labour relations boards.

The report calls for all provinces to review their respective labour relations boards. At the very least, it said, these “influential and powerful boards” must become more transparent and open by divulging greater information in a more timely matter.

Reduce effective minimum wage.

Every province but Alberta maintains a relatively high minimum wage as measured by the ratio of minimum wage earnings to per capita GDP. In fact, six of the bottom 10 jurisdictions (ranked from lowest to highest) were Canadian. “Such high real minimum wages will impede the efficient functioning of the labour market,” the report stated.

Overall, only three Canadian provinces — Alberta, Ontario and Manitoba — received a passing grade from The Fraser Institute.

“Canadian labour policy needs to permit workers and employers to negotiate employment contracts in a more flexible and responsive environment if the potential of Canada’s labour force is to be achieved,” said Clemons.

For a copy of the entire report in PDF format,

click here


How the provinces fared

Nevada took the top spot in the study, with the Southwestern U.S. states dominating the top of the rankings. Alberta led Canadian provinces, taking the number two spot overall just behind Nevada.

Ontario ranks second among the provinces but falls to 24th when the U.S. states are included. B.C., New Brunswick and Quebec all rank in the bottom 10 jurisdictions, with Newfoundland and Labrador occupying the bottom spot.

Here's a look at how the Canadian provinces fared:

Summary of provincial rankings
ProvinceRank out of 60Score (out of 10)
Prince Edward Island434.8
Nova Scotia464.7
New Brunswick514.3
British Columbia593.7
Newfoundland and Labrador603.2

The Fraser Institute's study attempted to broadly quantify labour market performance across the Canadian provinces and the U.S. states. It includes comprehensive measures of how well labour markets have performed over the last five years. It too a look at critical measures, such as unionization and public-sector employment rates and regulatory barriers, which affect overall labour market performance.

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