Banning temporary workers hurts workers by reducing wages and jobs
In recent years, British Columbia has enjoyed comparatively strong economic performance, but a number of provincial government policies continue to hold back the economy, preventing British Columbians from enjoying even greater prosperity.
One labour policy in particular causes significant economic costs but receives little attention. B.C. is one of only two jurisdictions in North America to prohibit businesses from hiring temporary replacement workers during a strike or lock-out (the other is Quebec). The evidence, however, shows that banning temporary workers discourages investment and ultimately hurts workers by reducing wages and jobs.
To understand the economic effects of banning the use of temporary workers, it’s important to recognize that the ban makes it more difficult and costly for an employer to operate or serve customers during a work stoppage. This affords union negotiators a marked advantage during collective bargaining by increasing the financial pressure that employers face during a work stoppage. In the short term, union negotiators may win concessions for their members on wages and other issues.
However, the higher labour costs and lower return on investment discourages entrepreneurs from doing business in a jurisdiction with a ban. In fact, the evidence shows banning temporary workers decreases the overall rate of investment in a jurisdiction by 25 per cent.
Business investment is critical to improving the ability of workers to transform inputs into outputs, or what economists refer to as productivity. Less business investment ultimately means lower productivity for workers, which in turn means lower wages than would have been the case with higher levels of investment.
Indeed, the adverse effect on investment helps explain a counterintuitive finding in the research: banning temporary workers actually lowers union wages in the long term.
While union negotiators may pressure employers to pay higher wages at the bargaining table, the benefit to workers of those higher wages is short term; in the long term, workers ultimately lose out on wage gains that they would have attained through increased productivity had investment levels been higher in the absence of the temporary worker ban. According to research, banning hiring temporary workers ultimately drives down the wages of unionized workers by between 1.8 and 3.6 per cent.
Another unintended consequence of bans on hiring temporary workers is fewer available job opportunities. When businesses are discouraged from investing (i.e. setting up, developing or expanding operations) or hiring labour, the result is that fewer jobs are created. One Canadian study estimates that bans reduce a jurisdiction’s employment rate by 1.3 percentage points.
Although B.C.’s economy has performed relative well recently, this is not a reason for the new government in Victoria to be complacent. Ending the prohibition on businesses from using temporary workers would help spark investment, raise wages and create jobs, making British Columbian workers even more prosperous.
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