Industrial Relations Outlook 2013: Embracing the New Normal

David Shepherdson
The Industrial Relations Outlook Webinar March 7, 2013

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The State of the Unions

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Changing Focus
The union wage premium has declined to about 8 per cent in Canada as technological change, global competition, and deregulation have reduced union bargaining power Higher union wage premiums have contributed to declining union density as employers increasingly resisted union organizing campaigns A singular focus on increasing the union wage premium may be counterproductive for the labour movement

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Developments to Watch
The newly merged CAW and CEP unions vision is to provide a collective voice for the broader public students, retirees, and the unemployed Given Canadas decentralized industrial relations structure, there will be little change in labour-management relations or collective bargaining outcomes, but If the new union succeeds in becoming the recognized voice of the disenfranchised, its social and political influence will be considerably enhanced

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Developments to Watch
Studies have demonstrated that public sector employees enjoy a substantial wage premium relative to the private sector about 13% without considering union status and at least 6% with that adjustment There is evidence that non-wage compensation (e.g., pension, disability, health and welfare benefits) is also considerably higher in the public sector Governments will increasingly focus on bringing public sector compensation and benefits more in-line with the private sector

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Developments to Watch
Terms of the recent auto industry agreement reflect concessions over and above those negotiated when GM and Chrysler were in bankruptcy and the industry is now profitable the new two-tier wage structure now constitutes a benchmark in the auto sector as cost pressure builds throughout the industrys supply chain At the very least, there will be considerable downward pressure on wages in manufacturing and related industries

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The Economic Outlook

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In General
The global economy has endured 4 years of fragmented and uncertain growth there is little evidence that this will improve substantially over the short to medium terms Ongoing concerns regarding the EU and false starts by the U.S. economy have eroded consumer confidence and slowed business investment Fiscal restraint will reduce government spending for the first time since the late 1990s

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In General
Employment growth remains somewhat lower than historical norms, but real hourly wages for full-time workers have posted meaningful gains increasing by a total of 10% between 1998 and 2012 Differences in both employment growth and wage increases across regions and industries are considerable with the biggest gains in Alberta and Saskatchewan while Central Canada and the Maritimes lag

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Real GDP Growth Rate in Canada

(percentage change)
4.0 3.0

2.0

1.0

0.0 2001 -1.0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012f 2013f 2014f

-2.0

-3.0

-4.0

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Source: The Conference Board of Canada, Statistics Canada 10

Employment Growth in Canada

(percentage change)

3.0 2.5 2.0 1.5 1.0 0.5 0.0 -0.5 -1.0 -1.5 -2.0 1997 1999 2001 2003 2005 2007 2009 2011 2013f

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Source: The Conference Board of Canada, Statistics Canada 11

Wage Growth
(percentage change)

5 4.5 4 3.5 3 2.5 2 1.5 1 0.5 0 2003 2004 2005

Average Weekly Wages

Consumer Price Index (CPI)

5 4.5 4 3.5 3 2.5 2 1.5 1 0.5 0

2006

2007

2008

2009

2010

2011

2012f

2013f

2014f

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Source: The Conference Board of Canada, Statistics Canada 12

The Compensation Outlook

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The Pay Environment in 2013

Projected average base pay increases for unionized workers are 1.6% in the public sector and 2.3% in the private sector lower than increases for non-unionized workers at 2.8% and 3.0% respectively Recent trends whereby unionized workers and those in the public sector realize smaller gains than employees in non-unionized positions and the public sector will likely continue for some time

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Union Wage Settlements

Public Sector
(per cent)

Private Sector
(per cent)

Overall
(per cent)

2012 Actual

1.7

1.6

1.7

2013 Projected

1.3

2.5

1.7

Source: HRSDC.

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Public and Private Sector Collectively Bargained Wage Increases and Inflation Rate
(1991 to 2013f)
Public sector wage increases Private sector wage increases Inflation rate

6.0

5.0

4.0

3.0

2.0

1.0

0.0

Sources: Human Resources and Social Development Canada (HRSDC)

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2013 Projected Wage Settlements by Industry

Projected Wage Adjustments By Industry (per cent)

Source: HRSDC.

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2013 Projected Wage Settlements by Region

Projected Wage Adjustments By Region (per cent)

Source: HRSDC.

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Actual and Planned Compensation Increases

(per cent; average increase among all non-unionized employees)
2012 Actual 2013 Planned

4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0

3.9 3.9 2.9 2.5

3.9 4.0 3.0 3.3 2.6 2.5 2.8 2.7 2.5 3.0

BC

AB

SK

MB

ON

QC

Atlantic

Source: The Conference Board of Canada

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The Bargaining Outlook

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The Public Sector

Governments in all jurisdictions remain focused on eliminating their budget deficits public sector unions cannot expect more than modest real wage increases Given public ambivalence towards unions in general and a growing antipathy towards public sector workers, the collective bargaining climate will be challenging

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The Private Sector

Reports of record corporate profits must be put in perspective, corporate profits have recovered to their long-term levels while labour income as a percentage of GDP has remained relatively constant since 1996 As with the auto industry, corporate profitability does not preclude the possibility that unions will have to make concessions where investment and employment growth is strong, unions should be able to realize gains

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Corporate Profits
(per cent of GDP)

16% 14% 12% 10% 8% 6% 4% 2% 0%

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Source: The Conference Board of Canada, Statistics Canada 23

40%

42%

44%

46%

48%

50%

52%

Labour Income

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1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012f 2013f 2014f

Source: The Conference Board of Canada, Statistics Canada 24

(labour income as a per cent of GDP)

The Haves and the Have Not

Private Sector
Oil & gas, mining are doing well - competition for labour is putting upward pressure on wages Organizations with legacy costs are not conflict between need for cost containment and labour's expectations

Public Sector
Governments focused on elimination of deficits will limit wage increases and employment growth Public sector unions that have faced years of restraint may not be so accommodating in 2013

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What to Expect
Both labour and management are bringing more realistic expectations to the bargaining table Over half (53%) of respondents to the Boards Compensation Planning Outlook survey rated the overall union-management relationship as cooperative while many (42%) rated the relationship as neutral

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Negotiation Issues
(percentage of unionized organizations)

Management
Wages (55%) Productivity (36%) Organizational change (36%) Flexible work practices (34%) Business competitiveness (32%)

Union
Wages (85%) Employment security (49%) Health benefits (36%) Pensions (29%) Outsourcing and contracting out (26%) Flexible work practices (19%)

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Conclusion

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The New Normal

The Canadian economy faces a period of slow near-term growth that will challenge government spending and revenue capacity over the long-term We should expect ongoing restraint in public sector employment and compensation across Canada, regardless of the political party in power Bargaining outcomes in manufacturing and related industries will mirror those in the auto industry downward pressure on wages and benefits, and increasing use of two-tier wage structures

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The New Normal

The new normal is characterized by modest economic prospects being matched by modest expectations at the bargaining table The good news is that this may provide a degree of stability and relative certainty about the future that will encourage pragmatism rather than rhetoric

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