Recession, Recovery and the Workplace

Following are my speaking notes for a presentation I was asked to make to labour ministers last week. I found myself much much more gloomy than my fellow panelists who think that we shall soon be experiencing labour and skills shortages. I hope they are right – but fear that this theme is being developed to deflect the need for action to deal with the jobs crisis which is still very much with us.

The “Great Recession” will have a major impact on the labour market and on workplaces over the medium-term — especially if we have a very slow recovery.

In my view, there will be no quick or easy return to the world as it was before the crisis.

Given a very weak U.S. economy and the high Canadian dollar, there will be intense competitive pressures on sectors exposed to international trade.

Given highly indebted households in the U.S. and Canada, household demand will be weak.

And stimulus packages and ultra-low interest rates will not continue indefinitely, and may well be followed by deep public sector spending cuts which would eliminate jobs.

We have a big hole to climb out of — we have lost over 400,000 full-time, paid jobs since October 2008 — many of them relatively well paid jobs which have been permanently lost due to plant closures — and there are 1,500,000 unemployed workers seeking work on top of those who enter the workforce every year. The economy has to grow by at least 2% per year to begin to reduce unemployment, since the workforce is still growing, and because productivity will continue to grow.

So — there will likely continue to be significant slack in the job market — meaning high unemployment and underemployment. This will be especially the case among young people and recent immigrants — most of whom will be eager to work and well-educated.

A major question is whether and to what extent skills shortages will appear.

On the one hand, it is true that the number of new entrants to the workforce will decline after we absorb the echo baby boomers — a gradual process which is still very much underway.

But this may be offset by a significant decline in the age of retirement, which is already underway due to the precarious financial position of too many baby boomers nearing retirement.

In my view, the labour market was far from tight, even before the Great Recession when we momentarily hit a 6% unemployment rate.

True, there were shortages of skilled workers in some occupations — notably the skilled trades and some health care occupations — and in some regions.

But there was still a lot of slack in the job market as shown by the fact that, even after we fell below 7% unemployment in 2004:

• Real wages rose only very slowly, and were lagging productivity growth. In the unionized sector, wage settlements remained subdued (averaging 2.6% 2004-2008) and benefits were being eroded (e.g., conversion of DB to DC pension plans).

• Productivity growth was very slow, mainly due to low levels of business investment in labour-saving machinery and equipment — not what we would expect if labour and skills shortages were a generalized problem.

• Employers were slow to hire younger workers and new immigrants into full-time, permanent jobs — as opposed to temporary and contract jobs.

What are the implications of continuing high unemployment, and underemployment at the level of the workplace?

Job security will be at a premium for anyone who holds a decent, well paid, full-time job, and wage growth will likely be very slow.

In the unionized private sector, the tendency will be toward greater co-operation to attract new orders and investment, and to save jobs.

One recent example of the co-operative approach has been work-sharing to save jobs — some 160,000 mainly unionized workers and their employers participated in EI work-sharing last year.

Unions have shown a lot of flexibility when it comes to giving employers more time to fill big holes in pension plans, as at Air Canada.

There is a lot of opportunity for employers to take the “high road” — to invest in new capital equipment, new processes, and in skills — and to forge positive workplace partnerships.

But a big caveat is in order. Demands for sweeping changes to benefits, especially pension benefits, will be strongly resisted. That is one of the big issues at play in the current strike at Vale Inco (which is, by the way, highly profitable).

In the public sector, there is clear potential for conflict if cuts in jobs, wages, and benefits are demanded by employers.

One key challenge facing labour ministers is the potential for a major erosion of already poor job quality for the bottom third or so of the workforce — especially in clerical, sales and service jobs, and some manufacturing jobs — as experienced unemployed workers run out of EI and compete for lower wage jobs.

Already over the past year, the wages of temporary workers have been falling in real terms.

There is a key role for basic employment standards in terms of setting a floor to wages and conditions.

Labour strongly supported the key recommendations of the Arthurs Commission on Part III of the Canada Labour Code, most of which are equally relevant to the provinces.

We support minimum wages at an adequate level to keep full-time, full-year workers above the poverty line, and limits on very long hours and unsocial schedules.

The most important recommendations were procedural — the need for proactive enforcement of standards combined with some flexibility in application.

For labour, making standards effective is key. Currently, about 90% of complaints are filed after the employment relationship has been terminated. Workers still on the job are afraid to complain.

The second key — related — challenge is the erosion of union density in the private sector (from about one-third in the mid- to late-80s to under 20% today).

This is obviously a challenge for unions — but it also has significant negative consequences for society as a whole and for the economy.

Workplace rights — even covering very basic issues, such as health and safety — tend to be unenforced if there is no union presence in the workplace.

And the presence of an organized worker voice secures the desirable balance between rights and flexible application of rules.

The erosion of union presence and bargaining power has been a key factor behind the decoupling of wages and productivity growth for those not at the very top of the occupational spectrum.

Wage stagnation is a major source of growth, not just of the working poor, but also of the heavily indebted middle-class. Stagnation of wages and family incomes means that rising consumption has been funded through debt — now 150% of personal disposable income.

Lack of balance in the workplace has led to increased imbalance between work and time for family, and increased stress at work.

Lack of balance also undermines the potential for positive working relationships which raise productivity, and increase competitiveness:

• unions promote training, and are associated with higher productivity;

• labour is not a commodity, but a productive potential of human beings with individual and social needs;

• As Werner Sengenberger, a retired senior ILO official has said:

  “A worker will be more or less productive, co-operative and innovative depending on how he or she is treated; whether the wage is seen as fair in relation to the demands of the job; whether the worker gets equal pay for work of equal value; whether training is provided; whether grievances can be voiced. In short, what the worker delivers is contingent on the terms of employment, working conditions, the work environment, collective representation, and due process.”

To conclude, the key point is that balanced relations in the workplace are key to social protection and to productive workplace partnerships — both of which will be badly needed as we exit the recession. The task of union renewal and relevance rests primarily with unions, but governments have a key role to play through balanced and fair labour legislation which makes unionization a genuinely free choice, and balances power in the workplace.