Over the past year labour income growth in Canada has slowed, while in the United States workers are enjoying the highest annual wage growth since 2009. The divergence reflects differing government policy directions. In the US, corporate tax cuts are encouraging investment and attracting businesses. But in Canada, governments have instead relied on counterproductive approaches, such as the heavy regulation of labour.
Case in point: Bill 148, the so-called “Fair Workplaces, Better Jobs” legislation introduced last year by the former Liberal government in Ontario. The most highly publicized “benefit” to workers of this legislation – a sharp minimum wage hike from $11.60 to $14 per hour – has so far backfired. Philip Cross, former Chief Economic Analyst at Statistics Canada, observes in a recent report that the minimum wage increase “had the inevitable effect of slowing job growth… the number of people in Ontario holding a job fell in the first half of the year.”
Fortunately, the tide of bad policy is beginning to recede, with the new Conservative government under Premier Doug Ford delivering a recent victory for Ontario workers by repealing and amending parts of Bill 148. Predictably, the NDP, Liberals, and unions swiftly condemned Ford for supposedly depriving downtrodden workers of decent wages, paid personal days, more predictable work schedules, and equal pay for part-time workers. In fact, Ford has done no such thing.
The fallacy underpinning the case for these labour regulations is that the price of employment – in the form of wages and non-wage compensation – plays no role in determining the amount of labour hours transacted between workers and firms. Those who believe this fiction imagine that employment is predetermined, so raising by law the price of employment only enriches workers by transferring the economic surplus generated by productive work from the employer to the employee.
In reality, these labour regulations favoured by interventionists are harmful to workers. Legislation entitling workers to more personal days, for example, means that businesses will not find it profitable to hire as many workers except by reducing wages in order to pay for enhanced non-wage benefits. In other words, the cost to businesses of providing these personal days is actually paid for by workers in the form of reduced wages.
That’s why Bill 148 didn’t enrich workers by entitling them to more personal days. Instead it made it illegal for workers to be employed unless they purchased, by accepting lower wages, personal days from their employer. That doesn’t actually help workers who want more personal days, since there is nothing preventing them from accepting lower wages in exchange for more personal days (or other benefits) in the absence of Bill 148. Indeed, many workers do just that.
Meanwhile, workers who don’t want to purchase personal days and other benefits from employers were made worse off by Bill 148. Especially serious harm was done to the lowest-skilled workers, who could not afford to purchase these benefits because the government made it illegal for them to accept lower wages. By simultaneously hiking the minimum wage while piling these regulations onto workers, the Liberals put many Ontarians in a situation where the cost of employing them is so high that businesses cannot profitably do so. The predictable result was thousands of lost jobs.
The new policy direction under the Conservatives is flawed, to be sure, but only because it does not go nearly far enough in its rewrite of Bill 148. Critically, the minimum wage hike was not rescinded, although Ford sensibly scrapped further increases and instituted a freeze for 33 months. Too many other provisions were kept in place – such as more mandatory paid vacation days for workers after five years of employment – allegedly to protect workers.
But workers are not protected by restrictions on the types of employment relationships they can enter into with willing employers. The only thing that effectively protects workers is competition. Just as Tim Hortons’ patrons can walk across the street to McDonald’s if Tim’s starts overcharging for coffee, so too can their employees leave for other establishments if Tim’s refuses to pay them competitively.
Tim Hortons’ employees aren’t protected by Bill 148 and other government regulations. They are are protected by the presence of McDonald’s, and Second Cup, and Starbucks. As Milton Friedman said, a worker is protected by the employers “who would like to hire him for whom he doesn’t work.” The best way to protect workers is to attract more competing businesses.
That’s why the current American approach of cutting taxes and regulation is yielding positive results, while Canadian labour regulations such as those in Bill 148 have driven away business and harmed workers. If Canada’s federal and provincial governments really want to help workers, they should cut taxes and regulations to make labour markets more competitive, and not make it harder for workers to find and keep jobs.