Unproductive Unionization: Labour and the Economy in Nova Scotia

The 2012 winter in Halifax was particularly bad, but not necessarily because it was cold. Instead, public transit workers engaged in strike action that lasted for six weeks in the middle of the winter and, despite earning much more than the average Canadian, demanded higher wages and better bonuses.

Public transportation is popular among students and low-income individuals who rely on it as a means of getting them to school or work and the strike displaced those riders. Once the strike ended, the Chronicle Herald conducted a survey and found that 42 per cent of voters were “still pretty angry” about the strike action, particularly because they felt that the strike demands were preposterous. (For example, the average salary of an HRM bus driver is $22/hour or $40,000, which is roughly 20-25 per cent higher than the median Canadian salary). The strike ended with a five-year renewal contract for $5.6 million ending in 2017, but there is chance that another strike will occur in the winter of that year.

Similarly, there have been several labour demonstrations and protests from the Nova Scotia Government and General Employees Union (NSGGE) and other unions representing the province’s healthcare sector, whom the essential services legislation–Bill 1 or the Healthcare Authorities Act–affected. These campaigners popularize their cause to gain support from the public by using emotional appeals such as “removing worker rights to strike = healthcare shortages.”

In the last few decades, union popularity has waned in the United States and to some extent in Canada, too, however, in Atlantic Canada, unions remain a powerful political force. In 2012, for instance, the Fraser Institute released a report on labour markets titled “Measuring Labour Markets in Canada and the United States,” which found that average unionized employment is 30 per cent in Nova Scotia and 39 per cent in Newfoundland and Labrador. (One of the reasons that report cited for these rates was the increase in public sector employment.)

Several studies show that unionization may discourage productivity rates, reduce employment prospects for new labour market entrants, and lower profits for private firms, the latter of which can affect business optimism. Economist Barry Hirsch, for instance, found that “market value and earnings [of firms] are estimated to be about 10-15 per cent lower in an average unionized company than in a nonunionized company, following extensive control for firm and industry characteristics” in his paper “Union Coverage and Profitability Among US Firms.” Furthermore, Tony Fang and John Heyword found that “the share of a plant’s workers covered by collective bargaining has a robust positive partial correlation with the probability of larger plants closing” in their paper “Unionization and Plant Closure in Canada.”

Removing worker rights in Nova Scotia does not cause healthcare shortages, but, rather, rigid government regulation that determines how many doctors and nurses to produce annually in the province does.  In fact, in many respects, there might be a correlation between union strength and labour shortages because those groups often restrict entry into a given sector. Moreover, affording employers the right to discard inefficient employees and hire more efficient replacements is a key component of building a dynamic labour market.

On the contrary, unionization can sometimes hinder labour market flexibility, as demonstrated in “Unionization and Input Flexibility in US Manufacturing, 1973-1996.” Ultimately, whereas some unions do protect worker rights, it is slightly misleading to argue that they protect the rights of every worker. Therefore, using that argument to gain public support can be deceptive. As economist Friedrich Hayek wrote, “It is one of the saddest spectacles of our time to see a great democratic movement support a policy that must lead to the destruction of democracy and that, meanwhile, can benefit only a minority of the masses who support it.”

Rinzin Ngodup is an AIMS on Campus Student Fellow who is pursuing a graduate degree in economics at Dalhousie University. The views expressed are the opinion of the author and not necessarily that of the Atlantic Institute for Market Studies