September 7, 2004

New Fraser Institute study finds . . .

Canada’s rigid labour laws create weaker job markets



Canada’s labour laws are more rigid and union-biased than in the U.S. and it has led to weaker job markets in this country, according to a new study published last week by The Fraser Institute, an independent public policy organization.

“Canada’s current labour laws have significantly restricted worker choice and forced higher unionization rates,” said Jason Clemens, co-author of the study and director of fiscal studies at the Institute.

“This is one of the reasons why a period of fairly solid economic growth in Canada has not translated into a stronger job market in most provinces.”

The study, called Measuring Labour Markets in Canada and the United States, was jointly produced with the National Center for Policy Analysis (U.S.).

The study says that empirical evidence shows that jurisdictions with flexible labour markets enjoy higher rates of job creation, lower levels of unemployment, greater benefits from technological change and higher rates of economic growth.

The study notes the significant differences between the two countries regarding worker choice for union membership and payment of dues.

The U.S. standard is to allow choice with respect to membership, but require only the mandatory payment of dues that are related to the cost of union representation.

“U.S. workers are not forced to pay for the political or social hobbyhorses of union officials, as they are in Canada,” Clemens said.

Some U.S. states, referred to as right-to-work states, have expanded on this further to allow workers choice in both union membership and the payment of full dues.

The Canadian standard is to allow, in one form or another, compulsory union membership and mandatory payment of full dues, including those for political and social purposes.

The study concludes that the lack of choice on the part of workers in Canada is one of two reasons for this country’s high unionization rates.

Between 1999 and 2003, Canada’s rate of unionization has been 32.2 per cent—more than double that of the U.S. at 14.8 per cent.

The study says the other main reason for the divergence in unionization rates is Canada’s much larger public sector.

Between 1998 and 2002, Canada’s public sector employment was 18.3 per cent versus 14.2 per cent in the U.S.

Canada’s public sector also tends to be much more heavily unionized.

In 2003, 19.9 per cent of Canada’s private sector was unionized while 75.6 per cent of its public sector was unionized.

The study also includes a Labour Market Performance Index that shows which provinces and states have the strongest and weakest job markets. The index took into account such things as job growth, unemployment and productivity.

The State of Nevada ranked first overall on the index.

The top-ranked Canadian province was Alberta, placing 2nd overall, and Ontario was the next highestranked Canadian province in 18th position.

Newfoundland was the lowest ranked Canadian province, occupying 56th position.

The study also measured minimum wages as a per cent of per capita GDP, public sector employment as a per cent of total employment, unionized employment as a per cent of total employment, and a measure of flexibility in labour relations laws in the private sector.

In each of the areas, the study found there was a significant divide between the U.S. and Canada.

The provinces consistently rank lower than their U.S. counterparts by maintaining higher unionization rates, higher effective minimum wages, larger public sectors and more rigid labour relation laws.

“Each of these indicators has the potential to significantly impact labour market performance,” said Clemens.

“For example, high unionization rates tend to reduce investment, which ultimately affects productivity and job growth. High minimum wages have been proven to reduce youth and low-skilled employment, encourage school dropouts and reduce investment in training and development by employers.”

Established in 1974, The Fraser Institute has offices in Toronto, Calgary and Vancouver.

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