Canada's Labour Regime not Business Friendly

Study recommends right-to-work laws to attract investors and create jobs

Release Date: 15 October 1997

VANCOUVER, BC>>> Jurisdictions with flexible labour regimes have higher levels of economic growth, derive greater benefits from technological change and, most importantly, enjoy lower unemployment rates, according to a Fraser Institute book released today.

Unions and Right-to-Work Laws: The Global Evidence of their Impact on Employment concludes that government-sanctioned monopoly unions have been a source of labour market rigidity, slower productivity growth, lower profits, less investment in physical capital and research and development, and slower rates of employment growth.

"The evidence presented in this book suggests that flexible labour markets in New Zealand, the United Kingdom and the United States have been key components to those countries outperforming Canada economically," said Fazil Mihlar, senior policy analyst at the Fraser Institute and editor of the book.

In Canada, provincial and federal labour codes provide unions with exclusive representation, meaning all individuals who wish to work in a particular industry or firm must belong to a designated union. By entrenching monopoly privileges restricting who can work in a particular industry or firm, closed-shop and Rand formula provisions introduce more rigidities into the labour market.

"Canada, which has had an average unemployment rate of almost 10 percent in the last 10 years, should consider liberalizing its provincial and federal codes by introducing Right-to-Work (RTW) legislation," said Mihlar.

What is a RTW law?

The right to work means that any person can get a job with any willing employer without having to join, or pay union dues to, an exclusive bargaining agent or union. RTW laws help constrain excessive wage demands by unions and keep wage increases in line with productivity growth. They also ensure competition for the right of representation, and place a bound of "reasonableness" on the posturing of union representatives during contract negotiations. "If wage levels are in line with productivity levels, there will be an inducement for firms to expand their operations. Consequently, there will be increased potential for job growth," added Mihlar.

Among the book's findings ...

The research evidence from the United States, New Zealand, and the United Kingdom suggests that jurisdictions with RTW laws have outperformed non-RTW jurisdictions by a significant margin. For example, Professor Barry Hirsch of Florida State University notes that:

on average, unionized firms have profits 10 to 20 percent lower than comparable non-union firms;
in the case of American manufacturing firms, investment in physical capital and annual expenditure on research and development of an average unionized firm was 6 percent lower and 15 percent lower respectively than its non-union counterpart;
Canadian evidence shows that union firms grew 3.7 percent slower among manufacturing firms and 3.9 percent slower among non-manufacturing firms compared to their non-union counterparts.

Research by Professor James Bennett of George Mason University and David Kendrick of the National Institute for Labour Relations Research states that:

in the United States, between 1947 and 1992, manufacturing employment increased by 148 percent in states with RTW laws. Over the same period, growth in manufacturing jobs was almost zero in states without RTW laws;
on average, manufacturing employment increases by one-third when one steps over the border from a state without RTW laws to a state with RTW laws;
between 1986 and 1993, in the Pacific Northwest of the United States, RTW states such as Nevada, Idaho, Utah, and Wyoming saw their average manufacturing job growth rise by 26 percent, while non-RTW states such as Washington, Oregon, Montana, and Colorado saw an average growth rate of 7 percent.

Professor Wolfgang Kasper of the University of New South Wales examined the impact of New Zealand's labour market reforms and found that:

after the enactment of RTW laws in 1991, the unemployment rate fell from 10 percent in 1991 to 5.9 percent in March 1996;
GDP grew by 15 percent in the three years after New Zealand enacted RTW legislation in 1991. This is as much as the economy grew in the 10 years between 1974 and 1984;
working days lost due to strike activity declined from 99,032 in 1991 to 23,770 by 1993.

Professors John Addison of the University of South Carolina, Stanley Siebert of the University of Birmingham, and Charles Hanson of the University of Newcastle upon Tyne analyzed the impact of labour market reform in the United Kingdom and concluded that:

firms that rid themselves of the closed-shop have higher levels of productivity growth;
profits continued to be lower in unionized workplaces, despite an overall improvement in corporate profitability;
Britain's unemployment rate declined from 11.2 percent in 1983 to 6.9 percent in November 1996.

Established in 1974, The Fraser Institute is an independent public policy organization based in Vancouver.

For further information contact:

Suzanne Walters, Director of Communications,
The Fraser Institute, (604) 714-4582,
Email suzannew@fraserinstitute.ca

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