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The Progressive Economics Forum

Canada’s Economic Problem is NOT High Wages

Bill Curry reports in today’s Globe that, at last year’s economic policy retreat, business leaders urged Finance Minister Flaherty to reduce the pay of “overpriced” Canadian workers, including through anti union right to work legislation.

Coincidentally, or not, the subsequent 2012 federal Budget introduced new rules which will require most EI claimants to accept jobs at much lower wages, and will allow employers of temporary foreign workers to pay less than the prevailing Canadian wage.

So, are Canadian wages really “too high.”?

The reality is that the pay of most workers has stagnated in real terms over the past thirty years as the profit share of  GDP has increased at the expense of wages, and as wages have become much more unequal with more and more of the total wage and salary bill going to the top 1% made up mainly of senior executives. As the OECD recently reported, since 1990, 6% of total national income has been shifted from wages to profits and the pay of the top 1% combined.

And a recent Statistics Canada study documents the stagnation of real hourly wages of the majority of Canadian workers between 1981 and 2011. Over that entire thirty year period, the average hourly wage of full-time workers rose by just 14% (and that includes the top 1%.) . This compares to growth of over 50% in real GDP per person over the same period.

The view that wages are “too high” boils down to saying that workers have no right to share in rising national income, all of which should go to profits and senior managers. That is, to say the least, a curious basis on which to sell the proposition that workers have any kind of stake in our current economic arrangements.

Even within the very narrow logic of international economic competitiveness, it is hard to argue that wages put Canadian employers at a significant competitive disadvantage.

The US Bureau of Labour Statistics publish harmonized data on unit labour costs in manufacturing. These will go up if increases in nominal hourly wages outstrip productivity gains, and are widely used as a measure of competitiveness. The base year is 2002.

Between 2002 and 2010, Canadian unit labour costs rose by 67.6% in US dollar terms, while US unit labour costs fell by 10.8%.  That is a huge loss of competitiveness compared to the US and countries, like China, which more or less peg to the US dollar.  This readily explains why we lost over 500,000 manufacturing jobs over that period.

However, measured in Canadian dollar terms, Canadian unit labour costs rose by only 9.9%, 2002 to 2010. The appreciation of the Canadian dollar against the US dollar has obviously been the key factor behind loss of competitiveness and jobs. (Minister Flaherty seemed singularly untroubled by this heading up to his retreat.)

Lagging productivity has also been a significant factor. Between 2002 and 2010, output per hour in US manufacturing rose by 47.1% compared to a meagre 10.0% in Canada. Minister Flaherty should be asking the CEOs at his retreat why they are sitting on record amounts of retained profits rather than investing in productivity enhancing machinery and equipment, research and development and worker skills.

And what about hourly wages in manufacturing in Canada? According to the BLS, they rose by just 20.9%, below the increase of 31.2% in the US.  Bear in mind that these are nominal wage increases. The BLS calculate that annual earnings in manufacturing adjusted for inflation rose by just 1.5% in Canada, 2002-10, compared to 10.2% in the US.

So, Canada’s massive loss of competitiveness against the US and countries that peg to the US dollar is overwhelmingly explained by the change in the exchange rate and our appalling productivity record, not by wages.

Not that this will stop the CEOs at this year’s retreat from complaining about over-paid Canadian workers.

(Full disclosure. I was invited to and attended the retreat in 2009. This should ensure that I am not asked back.)

Enjoy and share:

Comments

Comment from Paul Tulloch
Time: August 17, 2012, 12:09 pm

This is definitely a motley crew that has such a hatred on for workers.

One question I have for these CEOs, they do realize we are trying desperately to stave off a return of a full blow recession again, that will undoubtedly drag Canadians and the banks here into a whole lot more pain and suffering than what we endured last time.

If the only way forward that these CEOs can plausibly plan for is to cut workers and compete on wages then I really must say they sure do not earn their multi millionaire pay.

The outcomes and visionary statements are nothing but a barbed wire dystopian future that will ensure workers in Canada and the organizations we work in race to the bottom.

It truly is one of the most disturbing gatherings or consultations I have yet to hear from here in Ottawa.

What can you say about people that according to the media article, business and government leaders somehow convince themselves that one group of workers that have it so well are lower paid public sector workers and that we should target these workers with pay cuts? These are mainly women and minority groups in these positions. So the future of strategic direction of Canada should be based on beating up women and minorities groups in lower paying public service jobs??? Wow what nervy bunch of men! and mostly white men no doubt- and did mention mostly rich!?

If we leave the economic planning and direction to this bunch I suggest that all Canadians sell their house right now, as I am sure it will be worth much less when our housing sector bubble bursts when the next recession hits. With this band of brothers in charge it is inevitable we will not make it far down the pathway of building a prosperous future.

Since when did the Canadian Government start getting into the business that the best we can hope for and expect is LESS. Less pay, less helath care, less pensions, less good jobs, less eduction???

Since when did Canadians start electing governments whose best promise – is to guarantee less??? Hmmm strange equations of democracy or did the Harperites really win the last election?

By the way I am seriously thinking about helping organize a Worker Action Center here in Ottawa similar to that in Toronto, but in addition to helping workers on the street I wanted to also help create a voice for the precarious workers on the hill as well.

Please contact me if you think you might be able to help out.

Paul

mostlyacog1 (at) yahoo(dot) ca

Comment from Brian Dell
Time: August 21, 2012, 10:35 pm

Imagine a worker challenging his boss in this way…

Boss: You’re overpaid! South of the border I could get someone to produce what you do at half the cost.
Worker: No I’m not, because if I was twice as productive my wage would be competitive on either side of the border.

Worker wins the argument? It seems to me that the worker could demand that more be invested in productivity enhancing property, plant, and equipment and the boss would reply that these investments could be done south of the border for a win/win (from the corporate perspective) continued relatively lower labour cost and higher productivity.

In any case when have unions led the charge in calling for a productivity agenda? When the Germans adopted Agenda 2010 and its reductions in health care benefits, restructured labor regulations, tax cuts etc the unions fought it. And did the unions in southern Europe ever object to the fact that adopting the euro overvalued their currency? From what I recall they were more than happy about the buying power the euro gave local workers and consumers.

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