Let's Celebrate Labour, Not Unions

Labour Day and the underlying celebration of labour are so central to North American society that it’s the only holiday, outside of religious celebrations, that is held on the same day in both Canada and the U.S. On September 1st almost every Canadian and American town will be occupied with parades, picnics, and other community festivities honouring labour. These events should focus on celebrating the fruits of our labour, namely higher living standards; instead, they have been turned into marketing and propaganda tools for unions. Unions, however, are about the last thing that ought to be celebrated on Labour Day.

The net economic effects of high unionization rates are clear. Unionized firms perform worse than non-unionized firms on productivity growth, investment growth, employment creation, and profitability. Professor Barry Hirsch, in a major review of research on unionization, concluded that unions tend to decrease profitability, reduce investment in physical capital and research and development, and lower overall employment growth. Similarly, a more recent study published by the World Bank noted that unions reduce net profits, investment rates, and spending on research and development. It’s clear that unions also generally reduce labour market flexibility and adversely affect the overall efficiency of labour markets.

Unfortunately, Canada is a much more unionized country than our southern counterpart. In 2002, 32.2 percent of Canadian employees were unionized while only 14.6 percent were unionized in the United States. The fact that Canada underperforms the U.S. on investment, profitability and average personal incomes shouldn’t be a surprise given this self-imposed differential.

There are a number of explanations for Canada’s high unionization rate. Two of the more important are Canada’s large public sector and the absence of worker choice laws.

The fact that Canada has a larger public sector than the U.S., coupled with the much higher propensity for the public sector to be unionized, are important explanations for Canada’s relatively high unionization rate. Specifically, 19.6 percent of the private sector was unionized in Canada in 2002, while 75.9 percent of the public sector was unionized. This also offers some explanation as to why unions oppose any type of government reforms that lead to greater choice for workers and competition for the delivery of services: more flexible labour markets directly threaten the unions’ monopoly power base of support.

A second explanation for Canada’s high unionization rate is the absence of worker choice laws, or what have been called Right-to-Work laws in the United States. Canada’s current labour laws protect what is called closed-shop unionism. They require workers to join and/or financially support a single union or bargaining agent as a condition of employment. In other words, if an individual wants to work at a unionized company, they must join the union and/or pay mandatory union dues. Worker protection laws simply provide workers with a choice. They would no longer be required to join a union and/or support it through dues in order to secure employment at a unionized company. An immediate side benefit is that unions would face competition to provide better service to their own members.

Currently, some 22 US states have such legislation. Tellingly, when workers are given the choice of whether or not to join a union, they join unions in much lower numbers than when they have no alternative. States with Right-to-Work laws maintain the lowest unionization rates in the U.S. For instance, 18 of the 20 US states with the lowest unionization rates are states that possess Right-to-Work laws. A number of studies have concluded that the absence of such worker choice laws in Canada accounts for some of the observed differences in unionization rates.

By all means let us celebrate labour on this coming Labour Day. But let’s also acknowledge that there is a difference between celebrating labour and celebrating unions. There are substantial costs being imposed on our country because of unionization, particularly when our rate of unionization is compared with that of the United States. Canada and its constituent provinces should begin to address this costly problem by providing Canadians with more choice regarding union membership, while at the same time curbing the size of the public sector. Such reforms would facilitate improvements in labour productivity and ultimately in workers’ wages. Now that’s something to celebrate on Labour Day.