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The Progressive Economics Forum

Battle of the Wages study dispels myths about public sector wages

A comprehensive study released today by CUPE shows there’s no evidence public sector workers are paid consistently more than those in similar jobs in the private sector.

Instead, overall average pay in the public sector is remarkably similar when compared against similar jobs in the private sector: only 0.5 per cent higher.

This public sector pay premium can be entirely explained by a smaller pay gap for women in the public sector, partly because of stronger pay equity rules in the public sector.  Average pay for women in the public sector is 4.5 per cent higher than for women in similar jobs in the private sector, where the pay gap for women is considerably larger.  In contrast, men in the public sector were paid 5.3 per cent less on average than men in similar occupations in the private sector.

Pay in the public sector isn’t just more equitable for women: public sector pay scales are more equitable in all the dimensions we had data for: age, occupational group, and region.  These results were consistent for all levels of government.   Differences are especially significant at the top and bottom of the pay scales.

This means if public sector pay followed private sector standards as some business lobby groups and politicians have pushed, there would be little in overall savings, but inequality would increase across the board.   For instance, women would receive an average of ~$2,000 less per year, significantly increasing their pay gap.

This should be a real concern for everyone, not just public sector workers.   The IMF, Conference Board of Canada and the OECD have all raised concern recently about rising wage and income inequality damaging economic growth, as others have noted for many years on this blog and elsewhere.

While some business lobby groups, politicians and columnists have tried to create a politics of envy between workers, the real point isn’t who makes more: public or private sector workers.   The problem is that wages for most workers have been stagnant and are now declining in real dollar terms.

There’s significant correlation between public and private sector pay over time: we know that from wage bargaining.  It’s interesting to see that some in government have actually admitted it.  Both reports from the European Commission and Canada’s Associate Deputy Minister of Finance have stated that a major policy reason for constraining public sector pay is “to reduce undue upward pressure on private sector wages.”  (see footnote 12 in the report for more studies on this issue).

That’s right: governments are constraining public sector pay not so much to reduce deficits–they could reverse the corporate tax cuts to achieve that–but also to help suppress private sector wages.   And that’s why the CFIB has been pushing this with their own flawed  reports, so wages for their workers will be kept low and profits will rise.

This is exactly what our economy doesn’t need at this time.  Household finances are in a perilous state, our economy is suffering from insufficient demand, and businesses aren’t investing despite rising profits and having hundreds of billions of excess cash.  What we need is wage and income led growth and substantial public investments to keep the economy growing.

If there’s a battle between public and private sector workers over wages, it’s one that both sides lose–and that will cause even more damage for the economy.

There’s lots more in the report: a critique of the CFIB’s Wage Watch report, some information on the relative costs of pensions and benefits, and also a set of recommendations to reduce wage inequality.

This report, unlike most other comparative wage studies, provides data on actual average wages for specific occupations.

(I’d like to acknowledge the invaluable assistance Paul Tulloch provided with data analysis, application of statistical tests and aggregation.)

UPDATE:  Study reported on in Toronto Star

Enjoy and share:

Comments

Comment from Travis Fast
Time: December 13, 2011, 12:02 pm

Unfortunately because the study was done by CUPE no matter how good the quality of the research contained iner alia is, it will be dismissed as biased study by the CFIB and others of their ilk and creed.

Comment from Paul Tulloch
Time: December 13, 2011, 12:30 pm

That’s okay Travis, I openly invite the CFIB or others to run the numbers using methods the way one is supposed to and as outlined in the study. Actually I dare them to.

Toby did an amazing job.

Paul

Comment from Toby Sanger
Time: December 13, 2011, 12:39 pm

This is why — anticipating that type of criticism — the report is highly transparent with the data and methods used.

It provides average salary levels from the Census for specific detailed occupations together with aggregations.

This was no “black box” econometric exercise which plagues so much economics, where results are thrown out, but the data is hidden behind a number of equations.

Comment from Purple Library Guy
Time: December 13, 2011, 4:40 pm

Of course in one way these results kind of suck. The public sector has a much higher union concentration than the private sector. Apparently, by these results, nowadays unions don’t actually help wages much if at all.

Comment from Toby Sanger
Time: December 13, 2011, 7:16 pm

Actually, there still is a wage benefit to unionization, particularly for lower income workers: pay at the higher levels, particularly for executives is lower.

The impact of unions on moderating executive compensation pay is also evident in the private sector. See article by Gomez & K. Tzioumis, “What do Unions do to CEO Compensation?”

There’s other relevant material in an article by Michael Lynk on “Labour Law and the New Inequality”

Comment from Travis Fast
Time: December 13, 2011, 8:52 pm

To echo PLG ISR, I was not all thatg surprised to find the pay gap so low. In many ways the Canadian and provincial governments took the lead on effectively busting unions by the increasing use of back to work legislation and the like. And given the density rates in the public as opposed to private sector I expect the onslaught will continue. The union premium is but one aspect of the attack on unions. The real goal is to eliminate any notion of economic / industrial democracy, i.e., the notion that workers should be able to have any meaningful say at their place place of work. To think that increasingly autocratic and centralized bureaucracies and indeed governments have any interest in fostering worker participation (viewed essentially as a veto point) is folly.

To my mind, this time around, the focus needs to be on democratic decision making at the point of the production of goods and services while acknowledging the role government has to play in building the institutions to foster the democratisation of the workplace.

If Canadian men and women can be asked to go kill and be killed in the name of democracy abroad surely we can demand more democracy at home.

Comment from Travis Fast
Time: December 13, 2011, 8:56 pm

Oh and my initial comment was not a knock on the study it is very good. All I meant was that it will be tarred and feathered by right without any attempt to debunk the methodology. The right does not give two cents about rational discourse.

Their narrative is all that matters.

Comment from Paul Tulloch
Time: December 13, 2011, 10:12 pm

Obviously there are many non-monetary benefits to unionization and I do think it is these benefits that public sector unions offer. Recall that the study only compare those union members that have similar occupations in the private sector. So there are some occupations that are exculsively within the public sector and they do have pay advantages that we are not quantifying, which undoubtedly effects the notion of “union advantage”.

I also agree with Travis the assault on public sector unions undoubtedly reflect some of these differentials. We do have to consider that the last census year the economy was booming and we do know that private sector wages react a lot faster to market forces than public sector wages. For example if you notice Alberta, BC and to a lessser extent SK, the differentials swing in favour of private sector workers, which could lend support that the census cross section of wages was influenced by a quite heated economy in the west. Overall though, it is quite apparent that when it comes to waged benefits, there just is not the huge public sector advantage that many on the right and even some on the left lead us to believe- at least in terms of measurable worker outcomes.

That said about the aggregated level, one should note that the numbers do say that where workers are the most vulnerable, lower waged women workers, the union does provide for a significant advantage. Ultimately that is where one should feel quite optimistic about unions with their abilitity to bring some protection for workers away from quite exploitive and in the case of women, discriminatory pricing of worker inputs and value.

Paul

P.S. I did not take that as a negative Travis, and I do agree with you, the neo cons will most likely at best ridicule the study, if they even acknowledge it at all. However, I am hoping policy makers do take note and at least read the data and understand that targetiung public sector workers – wages and unions- they are basically targeting lower waged women workers, as these are the workers who benefit the most from the effect of Public Sector unions. At least in terms of direct costs.

Paul

Comment from Purple Library Guy
Time: December 14, 2011, 12:46 pm

I’m not going to argue against the idea that unions help both in terms of equity and working conditions and to some extent job security. I’m a CUPE man myself, and I’ve definitely seen situations around my workplace where someone without a union would have been seriously victimized, and had the impression that many issues were avoided entirely because managers knew they couldn’t pull too much crap. And I think union workplaces will tend to have better conditions in other ways, better vacation and such.

But it still points to a need for the union movement to get stronger. The fact is, it’s been very hard in recent years for unions to exert enough leverage to have serious impact on wages. And that means not only that it’s easier for union members’ wages to be cut, but also that non-union employers will feel freer to erode their employees’ wages. With no credible unionization threat because unions have no real capacity to extract wage concessions, employers have no need to stay close to unionized wage rates and indeed no unionized wage rates to stay close to. Just one more enabler for downward pressure on wages.

Comment from Richard
Time: December 19, 2011, 12:34 pm

Purple Library Guy.:”better vacation and such”.Yes it is the “such” that is out sync.The entitlements for life ie, benefits ,pensions,early retirement,jobs for life.All this guaranteed by the taxpayers.Wages are not an issue.Food for thought ,the Ontario Government budget is 100 Billion dollars of which 50 Billion dollars covers wages, benefits,and pensions of their public union employees.Yes it is the “such”that needs to be address.

Comment from Paul Tulloch
Time: December 19, 2011, 2:30 pm

It sure is amazing how we have let such race to the bottom discourse rule the airwaves. I hate to distract from your point Richard, but you know, we are trying to have a civil society here in the late stages of modernity. We could always roll back all the benefits and see where that lands us, but I don’t think even you will like it. We have been there, our whole history comes from the jaws and throt that you speak of. So here we stand, bailed out bankers and financiers are smiling once again, but the rest of us are supposed to now bend over and take it? I am sorry but it was not the public sector that ran up all the deficit, in fact, it is precisely the public sector that held it in place. (it surely was not the wizards of wall/bay street. )

So rather than take us down that pathway of destruction we need to focus elsewhere.

And I would argue that each sector has it’s own benefits and perks of the job. From company cars, to tax write offs, to bonus pay and the rest of it, the private sector has its own story to tell.

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