So Industry Minister Tony Clement is now insisting that cuts to workers wages will be a condition of any bail-out package for the auto industry. This comes after an economic statement that was going to remove the right to strike and legislate public sector wages, and before a budget that could also include wage cuts or constraints for workers.
I don’t recall constraints on executive salaries and compensation being any part of the $100 billion plus in support that Finance Minister Flaherty promised to Canada’s banks and financial industry (see page 64 of the economic statement for a summary of some of these). This is despite the fact that constraints on executive compensation were a highly publicized part of the U.S. financial sector and auto industry packages.
Not only is this ongoing attack on workers’ wages patently unfair, but it also doesn’t make economic sense.
Even Bank of Canada governor Mark Carney stated very explicitly in a speech a year ago that “misaligned incentives”, including those in financial institutions, were one of the main causes of financial market turbulence and excessive risk taking that caused the current financial crisis.
With this type of endorsement from someone who has been in that industry, it seems to me that controls on the compensation of executives and finance industry professionals should be a major part of the type of the reforms that are now necessary. This needs to include an ending of the tax breaks for stock options and capital gains (costing at least $10 billion a year in lower revenues) that further encouraged speculation and short-term profit taking at the expense of long-term productivity.
And it’s not as if Canadian CEOs are suffering: the average compensation of the top 100 was over $10 million in 2007, equal to 259 times the pay of the average worker.
On the flip side, cuts and further constraints on workers wages, which have seen very little real increases in the past decade, will only harm the economy by eroding confidence in the economy. Over the last decade, we’ve seen a massive and unprecedented shift to increasing indebtedness of households in Canada, while corporations have racked up hundreds of billions in surpluses as a result of high profits but low rates of capital investment. We’re not going to get much of an economic recovery until and unless workers and households get some of the benefits.