Forum Focus
LABOUR MARKETS
Creating a vibrant, dynamic labour market Amela K arabegović
T
here is undoubtedly much to celebrate this Labour Day. While the past two years have been tough for many Canadian workers, the news this year has been a cause for optimism. For example, employment has grown in nearly every month this year, and nearly 300,000 jobs were created in the first half of 2010 (January to July)—close to the total number of jobs lost during the recent economic downturn.1, 2 In addition, the unemployment rate declined during the first half of 2010, down from 8.7% at the height of the recession to 8.0% in July. While these trends are certainly positive, Canada’s labour market could be much more vibrant. Current labour policies in many provinces and at the federal level are biased and overly prescriptive, diminishing the flexibility of the labour market (Karabegović et al., 2009). Provincial governments are still increasing minimum wages, thereby reducing opportunities for young and low-skilled Canadians (Godin and Veldhuis, 2009). Our overly generous employment insurance (EI) system keeps unemployment rates higher and spells of unemployment longer than they ought to be (Veldhuis and Karabegović, 2009; Veldhuis and Lammam, 2009, Nov. 24; Riddell et al., 2006). Let’s use this Labour Day to remind our governments of the importance of creating a dynamic, well-functioning
10
Fraser Forum September/October 2010
labour market that can successfully respond to everchanging economic conditions. Most critically, Canada lacks labour market flexibility—the ease with which workers and employers can reallocate their resources to respond to changes in market conditions.3 Labour market flexibility is important because it reduces the cost and duration of the reallocation process that ultimately leads to higher job growth and a lower unemployment rate.4 Policy makers could improve labour market flexibility specifically, and the performance of Canada’s labour markets generally, by pursuing more balanced and less prescriptive labour laws. A recent study published by the Fraser Institute evaluated labour relations laws in the private sector for the Canadian provinces and US states based on whether these laws facilitated flexibility and choice by balancing the needs of employers and employees (Karabegović et al., 2009).5 The authors found that the Canadian provinces performed poorly in comparison to their American counterparts. Specifically, the provinces occupied the bottom 10 positions in the rankings (51st to 60th). “Successor rights provisions” in labour relations laws are a good example of how such laws affect individual
www.fraserinstitute.org