Amendments to the Federas Labour Code

Fraser Institute's Submission Calls for Greater Labour Market Flexibility to Reduce Unemployment

Release Date: 2 April 1998

VANCOUVER, BC>>> The Fraser Institute, in its submission to the House of Commons Standing Committee on Human Resources Development and the Status of Persons with Disabilities (2 April 1998), concludes that the proposed amendments to the Canada Labour Code are inconsistent with the federal government's general objective of creating an environment conducive to job creation.

In a recent Fraser Institute study entitled The Case for Liberalizing the Canada Labour Code: Why Enhancing Union Security is Inconsistent With Employment Creation, authors Fazil Mihlar and Ken Peacock conclude that unions are a primary source of inflexibility in the Canadian labour market. "The amendments to the federal labour code will produce additional rigidities within sectors of national economic importance and could potentially destabilize labour relations," said Mihlar, Director of Regulatory Studies at the Fraser Institute.

Industries governed by the federal labour code include: bus operations, trucking, shipping, air transport, broadcasting, telecommunications, banks, and postal services. "Any disruption in these key industries -- the lifeline of an export-oriented economy like Canada's -- will have an adverse effect on the rest of the economy," noted Mihlar.

In addition to affirming the existing right of exclusive representation and mandatory union dues from all employees, irrespective of a worker's desire to be a union member, the amendments would:

partially ban the use of replacement workers during strikes and lock-outs;
oblige employers to give a trade union a list of the names and addresses of off-site workers and authorize the union to communicate with them, thus assisting unions in their drive to certify workers;
impose wage floors for successive contractors in the transportation sector; and
introduce provisions for remedial certification based solely on the opinion of the Industrial Relations Board.>

These amendments, if passed, would impose substantial costs on society, primarily in the form of higher unemployment. Empirical research indicates that employment in unionized industries is indirectly reduced through lower firm profits and reduced levels of investment in physical capital and research and development. "The amendments do not recognize this reality. The federal government, in spite of this evidence, has introduced legislation which increases union security, thereby introducing more rigidity into the Canadian labour market," stated Mihlar.

If the proposed amendments are passed, it will handcuff the ability of federally-regulated firms to operate their businesses in an efficient manner. In order to maximize efficiency, it is critical that they have the flexibility to change their capital and labour mix. "If the government really wants to reduce unemployment, it must provide the flexibility that is necessary for firms to operate in a modern competitive environment. The evidence is that the proposed changes to the labour code will do just opposite," noted Mihlar.

Specifically, the proposed amendments to the Canada Labour Code introduced in parliament three weeks ago provide special protection for grain exports in the event of a work stoppage at Canada's ports. This special provision for grain is surprising given that grain constitutes only 1.8 percent of the dollar value of Canadian exports. In contrast, automotive products constitute 25.8 percent of Canada's exports, machinery and equipment account for 19 percent, and forestry contributes 13.7 percent.

In the case of British Columbia, the forest industry accounts for 63 percent of its exports, while in Ontario the automotive sector constitutes 40 percent. If the proposed amendments to the Code are passed, these important sectors of our economy would not be able to export their products through a port affected by a strike or lock-out. Exporters in the forestry and automotive industries, among others, may not be able to get intermediate products for their production process, which would disrupt production schedules and may result in a loss of market share. "The federal government appears to be ignoring this reality in allowing for a partial ban on the use of replacement workers which could adversely affect a large percentage of our exports," added Mihlar.

Britain and New Zealand liberalized their labour laws by eliminating union privileges and mandatory union membership and protected individuals rights to negotiate their own terms of employment, which culminated in a drastic reduction in both countries' unemployment rates. Labour market flexibility has helped to reduce the unemployment rate in Britain from 10.7 percent in 1984 to 6.1 percent in 1997. New Zealand's unemployment rate has fallen from 10.3 percent in 1991 to 6 percent in 1997. Presently, the U.S., with similar labour laws, has an unemployment rate of 4.7 percent. Mihlar concluded that the time is ripe for the federal government to take a cue from these jurisdictions and introduce more flexibility into our labour market.

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

For further information:

Suzanne Walters, Director of Communications,

The Fraser Institute, (604) 714-4582,
Email suzannew@fraserinstitute.ca

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