Labour conflicts are all around us. The conflict between the NHL owners and the Players’ Association, which led to the cancellation of hockey, still hovers over the country like a storm cloud. You can’t read a newspaper these days without seeing a story about the United Food and Commercial Workers’ Union (UFCW) aggressive drive to unionize Wal-Mart stores in Canada.

The increased attention to labour relations provides an opportunity to understand just how regulated Canadian labour markets are compared with our southern neighbours and why this has led to poorer labour outcomes such as higher unemployment, poorer long-run job creation, and lower incomes.

Examining some of the specific components of labour relations laws helps illustrate just how rigid and unbalanced Canadian labour laws are compared with the US. Perhaps the single most important labour regulation difference pertains to worker choice laws, referred to as Right-to-Work laws in the US. These laws stipulate whether workers have a choice regarding union membership and the payment of full dues.

The default position in the US is to provide workers in a unionized firm with a choice on both (membership and full dues). Workers in the US can opt out of union dues that are not directly related to representation-related spending, such as political activities. Twenty-two US states have extended this basic federal law to provide workers additional choice, allowing workers to opt out of paying any dues at all.

Canadian workers, on the other hand, have neither the choice to join a union, nor the choice of paying partial dues. In one way or another, all Canadian workers employed in a unionized firm essentially face mandatory union membership and the payment of full dues. Not surprisingly, Canada’s current unionization rate is well above that of the US.

Worse still, once firms are unionized, Canada imposes much more prescriptive regulations on organized firms than does the US. For instance, some provinces allow unions to protest technological investments if it is deemed to affect the collective agreement. Unions can actually impede, if not prevent, investments that make their workers more productive and ultimately improve their wages. The US has no such provisions.

Another area of difference relates to the sale or deemed disposition of a company with a collective agreement in place. Successor rights ensure that the buyer of a firm in Canada must honour the existing collective agreement even if circumstances have changed dramatically. Such provisions significantly impede the reallocation of capital, which is essential to a productive economy. Imagine trying to sell a struggling business whose primary difficulty is an out-of-date collective agreement and an inflexible workforce. Successor rights impede the sale of the business until such time as the collective agreement has expired. This is the reality in every province. Again, the US has no such specific provisions.

The list of differences is long but these three examples provide ample evidence that Canada’s labour relations laws are much more rigid and prescriptive than those in the US. Studies have confirmed the positive impact flexibility and balance has on labour market outcomes. The highest profile among these is the Jobs Study completed by the OECD, which found that jurisdictions with flexible labour markets had better job creation records and faster growing economies.

A study in the Quarterly Journal of Economics found that labour relations laws favouring one group over another lead to lower output, employment, investment and productivity. A growing number of studies show that regulated labour markets impose costs on citizens in the form of less job creation, less investment, and ultimately less income.

Canadians will never close the productivity gap between ourselves and the US and enjoy the full potential of our economy until we pursue greater flexibility and balance in our labour regulations.