All bets are that Bill C-257 will be passed by the federal government in the upcoming session. The mainstay of this bill is the prohibition against the use of replacement workers in federally-regulated industries such as banking, transportation, and telecommunications. Unfortunately, rhetoric has thus far trumped a dispassionate, thoughtful evaluation of the effects of the proposed law. Such an evaluation leads to only one conclusion: banning replacement workers will make already biased and unbalanced federal labour laws worse and in the process impede economic prosperity for Canadians.

The method and degree to which a society regulates labour markets has significant economic consequences. A large and growing body of research shows that flexible labour markets are better than heavily regulated ones across a number of indicators such as job creation, unemployment rates, and investment.

For example, a 2004 study published in the prestigious Quarterly Journal of Economics concluded that “heavier regulation of labour is associated with lower labour force participation and higher unemployment”. Similarly, a study by Harvard Professor Rafael Di Tella and his colleague Robert MacCulloch in 2005 concluded that “more flexibility leads to lower unemployment rates and to lower rates of long-term unemployment.”

London School of Economics Professors Besley and Burgess specifically examined labour relations laws which include replacement workers laws and found that labour relations laws favouring one group (either workers, employers, or unions) over another led to lower output as well as reduced levels of employment, investment and productivity. This is particularly important for the current debate over replacement worker bans since this type of law inherently benefits one group (unions) at the expense of all others.

Organized labour has of course been leading the charge in support of banning the use of replacement workers. The claims of the positive effects from banning replacements workers is perhaps best summarized in statements made by Ken Georgetti, President of the Canadian Labour Congress. In a Letter to the Editor appearing in the Ottawa Citizen on December 11, 2006, Georgetti stated that “There is no evidence, none, that anti-scab laws have any impact, positive or negative, on investment and competitiveness.” He went on to assert that “The evidence that does exist shows us that anti-scab laws work very well at preventing the injuries, disruption and lingering anger that result from strikes and lockouts where replacement workers are used.”

Such statements directly conflict with the empirical research available on the economic effects of replacement worker bans. For example, Professor John Budd of the University of Minnesota has published two peer-reviewed articles in academic journals on replacement worker bans. The first, published in Labour Economics, concluded that replacement worker bans reduced employment.

Professor Budd, along with his colleague Professor Yijiang Wang, followed up the initial study with an examination of replacement worker bans and investment. Using Canadian provincial investment data over a 30-year period, they concluded that the investment rate in provinces with replacement worker bans was lower than in provinces without them. In other words, using Canadian data, Professor Budd concluded that banning the use of replacement workers led to lower employment and less investment.

Professor Budd doesn’t stand alone in his conclusion that there are real negative costs associated with banning replacement workers. Scholars Peter Cramton, Morley Gunderson and Joseph Tracy published an important study in the Review of Economics and Statistics that examined the economic effects of a number of labour laws including replacement worker bans. The study looked at large, private sector contract negotiations in Canada between January 1967 and March 1993 and concluded that “legislation banning the use of replacement workers leads to higher negotiation costs by increasing both the frequency and duration of strikes.” Contrary to the rhetoric that is being employed to sell the current legislation, banning the use of replacement workers has led to the exact opposite result: more and longer strikes.

The federal Department of Finance as well as a number of international organizations including the OECD and the IMF have recognized the need for improved labour market flexibility in Canada. Indeed, our own analysis of labour relations laws in Canada and the United States has determined that Canada’s federal laws are out of step with the rest of North America in terms of balance and neutrality. The proposed ban on replacement workers would simply make a bad set of laws worse and in the process injure Canadian employment, investment, and labour peace.