Danger in Rigid Labour Laws: Ministers Propose Prescriptive Changes to Labour Market Regulation

Recent announcements by the Ontario Minister of Labour, Chris Bentley, and his federal equivalent, Joe Fontana, indicate big changes to the regulations governing labour markets. Both ministers are pushing for prescriptive changes to existing labour laws, an approach that is not only counterproductive but flies in the face of overwhelming evidence on how well-functioning labour markets actually work.

Average Canadian workers will see less job creation, higher unemployment rates, declining incomes, and a generally less-vibrant labour market.

On the federal front, Labour Minister Fontana has proposed a monumental exercise to review a number of federal labour laws, covering such issues as minimum wages, vacation time, and the length of the workweek. However, he has pre-empted his own review by expressing a personal preference for longer vacation times and four-day workweeks. He also mused about the possibility of banning replacement workers, effectively increasing federal unions’ bargaining power.

The federal reforms completely detach the benefits of labour (income, pensions, work conditions, etc.) from underlying labour effort and productivity. In other words, Minister Fontana assumes that the government can simply legislate increased benefits, such as shorter workweeks, without undermining the labour market. The experience of France and Germany demonstrate how rigid labour laws lead to disastrous results.

Ontario Minister Bentley has wrong-headed policies. His large-scale increases to Ontario’s minimum wage will produce the country’s highest minimum wage by 2007 and proposed labour reforms would establish card-only certification for unions in certain sectors, instead of requiring secret ballots. He favours restoring the almost arbitrary ability of the Ontario Labour Relations Board, the organization charged with administering labour relations laws, to remedially certify unions and wants to eliminate the requirement that decertification notices be posted in workplaces that challenge union representation. The effect would make it easier to unionize a firm in Ontario and more difficult to remove a union once established.

These labour reforms are being proposed despite competition from other jurisdictions. In a recent Fraser Institute study examining flexibility in labour relations laws, Ontario ranked 52nd out of the 60 U.S. states and Canadian provinces. Further, a new study in the Quarterly Journal of Economics found that labour relations laws that favour one group over another lead to lower output, employment, investment and productivity. The minister’s notion that the announced changes would ensure fairness and choice in Ontario’s workplaces is almost Orwellian and simply out of step with the reality of labour relations laws across North America.

Flexibility is key. As market conditions change, employees must be free to shift their employment efforts and choose the amount of hours they work, while employers must be able to change the mix of labour and capital. Above all, productivity, not regulation, must determine wages. As many studies have found, the level of flexibility in a labour market positively affected per worker earnings and investment and negatively affected unemployment rates.

Canadians are already burdened with rigid and prescriptive regulations that impede the job market from operating at its full potential. Despite a generally robust economy in recent years, Canada has consistently maintained higher rates of unemployment, longer terms of unemployment, and lower levels of income for workers than almost any U.S. state. In a ranking of the broad performance of provincial and state labour markets, Ontario ranked 18th, with a C grade of less than 6 out of 10. And it was one of only four provinces that received a passing score. Clearly, Canada’s labour markets are not firing on all cylinders.

Given the empirical evidence of the benefits of flexible labour markets and our current state of difficulty, it is simply irresponsible for two of Canada’s most influential labour ministers to promote increases in the rigidity of labour laws, thus reducing labour market flexibility and ultimately impeding performance. For the benefit of all Canadian workers, Bentley and Fontana should cease their current misguided efforts and begin to implement flexible labour laws, which deliver more job creation, less unemployment, and improved income growth.