Ado over wages act misguided

Market forces drive standard of living more than a law like this

Buried deep within Bill C-38, the omnibus budget implementation bill, on page 305 of 425, just before the bit about raising the retirement age two years and just after certain amendments to the Canada Labour Code, is the following provision: “The Fair Wages and Hours of Labour Act is repealed.”

Little else is said about it. The budget itself gave no hint that such a change was in the offing. Nor is any explanation provided. You would have to look elsewhere to discover that the Act is a Depressionera holdover requiring all businesses doing construction work for the federal government to pay “fair wages,” defined as “such wages as are generally accepted as current for competent workmen in the district in which the work is being performed.”

So far, so devious. A fairly important change to federal contracting practices, dropped into a mammoth omnibus bill, without notice or context, denying parliamentarians the opportunity to vote yea or nay on it as a separate proposition, but only as part of the government’s legislative agenda in toto. Indeed, parliamentarians might not even have been aware of it, had it not been spotted by the NDP’s Pat Martin, a former construction worker, who has been raising a stink about it ever since.

As a matter of process, then, the measure suffers from the same defects as the rest of the bill, about which I have complained elsewhere. But what about on the merits? Martin, for one, appears to believe the Act is all that stands between the Canadian worker and destitution, its repeal part of an insidious “war on labour” that will, according to a Toron

to Star report, “keep wages low for a middle-class that has seen little improvement in income for decades.”

“In whose interest is it,” Martin thundered in the Commons this week, “to drive down the wages of Canadian workers?”

OK, I’ll bite. How about: other Canadian workers? By “driving down” wages, of course, he means not artificially propping them up in legislation; and he doesn’t mean everybody’s wages, but only those favoured few to which the Act applies.

Canadian workers are also taxpayers, and as such deserve to get the best value for their money. The purpose of federal construction contracts is construction, the building and maintenance of public works, not to redistribute income from one group of workers to another.

More to the point, workers are entitled to compete for jobs. The practical effect of the act’s insistence on “fair wages” is to limit competition on federal construction projects, restricting the business to a handful of large, established firms with highly-paid, usually older workforces, to the exclusion of smaller firms with younger employees. An act that prefers the interests of the higher-paid to those of the lower-paid may be many things, but “fair” isn’t one of them.

But this isn’t just a dispute about this particular piece of legislation. More broadly, this is about differing visions of the economy, and how incomes grow over time. Do standards of living rise because we legislate them higher? Or does it depend on other things, like productivity?

Much popular thinking about the economy inclines to the former view. We grow richer, in effect, by overpaying each other, and overcharging each other in our turn. To leave the setting of wages to the market would, in this view, lead inevitably to a “race to the bottom.” Only by pegging wages above market levels, whether directly in law, or by means of union representation, is there any hope even of maintaining such progress as has been achieved, let alone making further gains.

An act that prefers the interests of the higher-paid to those of the lower-paid may be many things, but “fair” isn’t one of them.

But if the pop economics story were true, it would be hard to explain why anyone made more than the minimum wage — anyone, that is, who did not work in a union shop. In fact only about five per cent of workers in Canada make the minimum, while just 16 per cent of the private sector workforce belongs to a union.

Yet, far from stagnating, as the Star story claims, living standards in Canada have in fact been rising steadily for most of the last two decades: from 1993 to 2008, median family income grew by 21.5 per cent after inflation. Incomes fell in the previous decade, but for an obvious reason: the two bone-crunching recessions that began and ended it. When large numbers of people are earning no income — because they are unemployed — the median tends to lag a bit.

What that ought to suggest is that wages and incomes do not, in fact, fall to zero in the absence of some legislated floor — they are subject to the workings of other laws beside those of the state, including the laws of economics. Put simply, the amount of goods and services we can buy, whether as individuals or, in the aggregate, as a country, will depend on the value of the goods and services we can offer in exchange.

Or in even simpler terms: If we want to be able to buy more stuff, then either we have to make more stuff — that is, increase productivity — or charge more for the stuff we make. Rising living standards in Canada of late have been fuelled less by the former and more by the latter, namely by the higher prices we can command on world markets for the resources we export, notably oil. They have had rather less to do, I suggest, with the Fair Wages and Hours of Labour Act.