B.C.'S LABOUR REGIME NOT BUSINESS FRIENDLY: Right-to-work legislation needed to attract investors and create more jobs

Contacts: Fazil Mihlar, Policy Analyst, The Fraser Institute
(604) 688-0221, ext. 542
Michael Walker, Executive Director, The Fraser Institute
(604) 688-0221, ext. 545

Release Date: February 29, 1996

VANCOUVER, B.C.>> Neighbouring American states with flexible labour regimes have out-performed British Columbia in terms of job creation in the last few years, and prospective investors view B .C.' s labour regime as being hostile to business. a Fraser Institute study has found.

According to Fazil Mihlar, policy analyst at The Fraser Institute and author of the report, A New Labour Regime for British Columbia: Towards Job Creation, government intervention in labour markets has been the source of labour market rigidity, reduced competitiveness, and slower rates of employment growth. "The perceived and real costs of doing business in B.C. are high," said Mr. Mihlar. "Faced with a choice, investors choose to locate in more 'business friendly' jurisdictions."

The fundamental problem is that B.C.'s labour regulations are more rigid and costly than those adopted by our trading partners, particularly the Americans. B.C.'s Labour Code not only makes it easier for unions to get certification, but it also bans replacement workers during strikes and lock-outs, permits secondary picketing, and eliminates secret ballot provisions.

In addition, workers compensation premiums have risen steeply, the minimum wage rate has increased by 16 percent, and direct provincial public sector employment has increased by 12,000 between 1991-1995 . Along with high corporate and income taxes, provincial government labour policies have introduced rigidity into the labour market and made it difficult for firms to invest in the province. In sum, these initiatives have priced B.C. labour out of the market.

According to Mr. Mihlar, fundamentally reforming labour laws by eliminating "closed-shop" and "union-shop" privileges will introduce flexibility in wages and conditions of work. This will ensure that labour markets work efficiently and thus provide the impetus for increasing economic activity and the creation of jobs.

The study' s key recommendations include:

•Implementing right-to-work (RIW) legislation

•Repealing the recent amendments to the Employment Standards Act

•Reducing workers compensation benefits to a maximum of 75 percent of net earnings

•Eliminating minimum wage legislation

•Scrapping the Fair Wage Act

•Privatizing or contracting-out the delivery of public goods

Right-to-Work Legislation-How it Works

The evidence from the U.S. and New Zealand suggests that RTW legislation has helped boost economic growth, job creation, and the standard of living in both countries.

•Between 1988 and 1993, 77 percent of all new high-paying manufacturing jobs in the U.S. were created in the 21 RTW states, even though these states have less than 35 percent of the U.S. population

•Once taxes and cost of living are taken into account, a typical family in a RTW state in the U.S. has $2,852 more disposable income annually than families in non-RTW states

•Following its enactment of RTW legislation in 1991, New Zealand' s national output grew by 15 percent in three years, which was as much as the economy had grown during the entire decade between 1974 and 1984

•Between 1991 and 1995, over 150,000 new jobs were created in New Zealand, and the aggregate level of unemployment fell from 11 percent in September 1991 to 6.6 percent in March 1995

B.C.'S Labour Code How it Fails

The provisions embodied in B.C.'s labour code and other initiatives enacted by the provincial government have resulted in labour strife. Between 1990 and 1994, the number of work stoppages, including strikes and lockouts, averaged 77 per year. In contrast, Alberta, with its relatively reasonable labour code and fewer interventions in the labour market, had an average of 11 work stoppages per year over the same period.

Since the abolition of secret balloting for union certification in B.C., the average number of certifications per year has more than doubled, from 235 to nearly 500. "Of greater concern," said Mihlar, "is that 78 percent of certifications in 1995 were granted to firms with 30 employees or less, companies most in need of a flexible workforce."

Conclusion

Labour market flexibility is not a panacea for all economic ills. It is, however, one important factor in the equation for economic prosperity. Currently, B.C.' s labour code and other labour legislation inhibit flexibility in labour markets, reduce incentives for increasing productivity, and increase the costs of production.

Over time, B.C.'s labour regime will make the province a less attractive location for investment. In an increasingly dynamic and competitive business environment, the current labour laws damage the province's ability to foster economic growth and create jobs.

For a copy of "A New Labour Regime for British Columbia: Towards Job Creation," please contact David Hanley at (604) 688-0221, ext. 582, or visit our Web site at http://www.fraserinstitute.ca.