Ire244H Labour Relations Economic Environment (Fall 2024) PDF

UT of IRE244 LEC 5101 Fall: Labour Relations Fall 2024 Lectures on Wednesdays 6:10pm – 9pm in BA1190 Alex Brat, Instructor Centre for Industrial Relations & Human Resources Lecture 2 Industrial Relations Systems Framew...

UT of IRE244 LEC 5101 Fall: Labour Relations Fall 2024 Lectures on Wednesdays 6:10pm – 9pm in BA1190 Alex Brat, Instructor Centre for Industrial Relations & Human Resources Lecture 2 Industrial Relations Systems Framework: The Economic & Socio-Political/Legal Environment Course website: https://guides.library.utoronto.ca/labourrelations 1 UTof The IR Systems Framework - Economic External Internal Conversion Actors Outcomes Environments Inputs Mechanisms - Union Day 2 Gov’t Recognition Economic Goals and Security - Certification Political Values - Collective - Bargaining Mgmt Agreement Legal Power - Mediation / - Due Process Arbitration Social Union History - Strikes / Lockout Feedback loop to Internal / External Inputs 2 UT of Economic Environment: Outline Demand for Labour Raising the Minimum Wage Deindustrialization Supply of Labour Labour Force Participation and Hours of Work Aging of the Population & Mandatory Retirement Women in the Workforce Non-Standard Work The Productivity Paradox 3 UT of Chronology of Minimum Wage The minimum wage in Canada (Ontario) is a basic labor standard that sets the lowest wage rate that an employer can pay per hour to employees who are covered by the legislation. Every province and territory in Canada provides a minimum wage in its employment standards legislation. This figure provides Average Minimum Wages in Canada. Minimum Wages in Canada averaged 5.88 CAD/Hour from 1965 until 2019, reaching an all-time high of 14 CAD/Hour in 2018 and a record low of 1 CAD/Hour in 1966. 4 UT of Minimum Wage Legislation in Ontario Ontario Employment Standards Act specifies a general minimum wage, which is generally about 40- 50% of average industrial wage Coverage of Ontario minimum wage – 5% of Ontario employees work at minimum wage – 3% of total hours worked – 1.5% of total earnings Minimum wage policy is a controversial issue in Canada Variety of approaches taken by Ontario governments over the past few decades 5 UT of Chronology of Ontario Minimum Wage Date Minimum Wage Jan 1995 $6.85/hr Feb 2004 $7.15 Feb 2005 $7.45 Feb 2006 $7.75 Feb 2007 $8.00 Feb 2008 $8.75 Feb 2009 $9.25 Feb 2010 $10.25 Feb 2011 $10.25 Q: So who is better off, a worker in 1995 or in 2010? 6 UT of Need to See Change In Real Minimum Wage Date Min Wage CPI Real Min Wage (1992=100) (2006 dollars) 1995 $6.85/hr 104.5 $8.51 2003 $6.85 122.3 $7.28 2004 $7.15 124.6 $7.45 2005 $7.45 127.3 $7.60 2006 $7.75 129.9 $7.75 2007 $8.00 132.9 $ ??? 2008 $8.75 Q: What is the “real” 2009 $9.25 minimum wage in 2007? 2010 $10.25 7 UT of Change In Real Minimum Wage (with inflation) Date Min Wage CPI Real Min Wage (1992=100) (2006 dollars) 1995 $6.85/hr 104.5 $8.51 2003 $6.85 122.3 $7.28 2004 $7.15 124.6 $7.45 2005 $7.45 127.3 $7.60 2006 $7.75 129.9 $7.75 2007 $8.00 132.9 $7.82 2008 $8.75 e.g., 2007: (129.9/132.9)*$8.00 2009 $9.25 =$7.82 2010 $10.25 8 UT of Minimum wages compared Canada always in the “middle” of any cross- country graph. Never the worst and never the best! 9 UT of Chronology of Ontario Minimum Wage Date Min Wage Date Min Wage Jan 1995 $6.85/hr Feb 2004 $7.15 Mar 2012 $10.25 Feb 2005 $7.45 Mar 2013 $10.25 Feb 2006 $7.75 Jun 2014 $11.00 Feb 2007 $8.00 Jan 2018 $14.00 Mar 2008 $8.75 Jan 2020 $14.25 Mar 2009 $9.25 Jan 2021 $14.35 Mar 2010 $10.25 Jan 2022 $15.00 Mar 2011 $10.25 Oct 2022 $15.50 Oct 2023 $16.55 Oct 2024 $17.20 10 UT of Ontario Minimum Wage Policy 1995 onwards Eight policy approaches: Over 20+ years from 1995 to 2018 there have been 8 distinct policy periods: 1. Conservative Freeze 1995-2002: Minimum wage not increased during 8 years of Conservatives in office in Ontario under Premier Mike Harris 2. Annual Increases 2003-2007: Ontario Liberal govt increased min wage from $6.85/hr in 2003 to $8.00/hr in 2007 (i.e., 17% over four years). Increase determined year by year 11 UT of Ontario Minimum Wage Policy 1995 onwards 3. Pre-determined Increases, 2007-2010: In 2007 anti-poverty groups mounted a concerted campaign to increase the minimum wage to $10/hr. They argued that at $8/hr an EE working full-time year round would only earn $16,000/yr, below the “poverty line.” [50 wks @ 40 hrs/wk = 2000 hrs/yr] In 2007 the Ontario govt announced the minimum wage would increase from $8.00 to $10.25 by 2010, an increase of 28% over three years 12 UT of Ontario Minimum Wage Policy 1995 onwards 4. Liberal Freeze, 2011-2013: The year after the Ontario government announced its three-year program of minimum wage increases the Canadian economy entered a recession caused by the Global Financial Crisis Minimum wage frozen at $10.25 for 2011, 2012 and 2013 13 UT of Ontario Minimum Wage Policy 1995 onwards 5. Catch-up and Keep-Up (2014-2017) Considerable dissatisfaction from both business and labour communities over the pattern of substantial increases followed by freezes in the minimum wage July 2013 Ont govt established a Minimum Wage Advisory Panel chaired by Prof Anil Verma, of UofT’s CIRHR. [see next slide] Anti-poverty advocates campaigned to increase minimum wage to $14/hr. Held several “days of action” to support campaign. Ontario Chamber of Commerce advocated increasing the minimum wage annually by the percentage increase in CPI to keep the real minimum wage constant (avoid freezes & large increases 14 UT of Chronology of Ontario Minimum Wage - 2014 There was broad agreement within the Panel that the basis for revisions to the minimum wage should be easy to understand and administer. The Panel also identified strongly with the public input that the revision process should be predictable, fair, transparent and somewhat removed from government's near-term concerns. With these criteria in mind, our Panel has reached a consensus around four recommendations, listed below, which are offered for the Government's consideration. Recommendation #1: Minimum wages should be revised annually by a percentage equal to the percent change in the Ontario Consumer Price Index. Recommendation #2: Minimum wages should be revised annually, and a minimum of four months' notice of any wage change should be provided. The effective date of minimum wage changes should be April 1 of the following year. This would result in notification by December 1 of the previous year. Recommendation #3: The Government should undertake a full review of the minimum wage rate and the revision process every five years. This review should be conducted by a panel of stakeholders and a neutral chair. The mandate of this Panel would be to review Ontario's past experience with minimum wage revisions within the context of Ontario's social and economic progress and prevailing practices in other jurisdictions to recommend changes that could better serve Ontario's future needs. Recommendation #4: To aid the full review process, and to ensure that Ontario's minimum wage policies are in step with the needs of its citizens, the Government should establish an ongoing research program for data and information gathering and its subsequent analysis to address policy-relevant minimum wage issues. 15 UT of Ontario Minimum Wage Policy 1995 onwards – Catch-up: In Feb 2014 the Liberal govt passed legislation to increase the minimum wage from $10.25 to $11.00 (an increase of 7%) to catch-up for inflation during the three year freeze – Keep-up: From 2015 onwards, increases in min wage to were to be tied to increases in Ontario CPI, as recommended by Advisory Panel Minimum wage increased to $11.25 in Oct 2015 and to $11.60 in Oct 2017 (in accord with increase in CPI). However, the Liberal government abandoned the policy of tying the minimum wage to the CPI after only three years 16 UT of Ontario Minimum Wage Policy 1995 onwards 6. Changing Workplace Review (2017-2018) May 2017, Ont Govt announced, that following the Report of the Changing Workplace Review, the minimum wage would increase to $15/hr in two stages Increase from $11.60 to $14/hr in Jan 2018 (an increase of 21%) Also announced increase to $15/hr Jan 2019 (an increase of 7%) 17 UT of Ontario Minimum Wage Policy 1995 onwards 7. Conservative Govt Freeze, 2018-2021 June 2018. Conservative government elected, headed by Premier Doug Ford Announced the minimum wage would be frozen at $14/hr and cancelled the 2019 increase to $15/hr announced by the previous Liberal government 8. Conservative Gov’t Catch-up, 2021-22 Conservative government wanting to get re-elected, announced a $15/hr increase, followed by $15.50/hr, then $16.55/hr effective Oct 1, 2023, and $17.20/hr effective Oct 1, 2024 https://news.ontario.ca/en/release/1001090/ontario-to-raise- minimum-wage-to-15-an-hour 18 UT of Rationale for Minimum Wage Reduction of poverty and a more equitable distribution of income – i.e., intention is to redistribute income to relatively low wage minimum wage employees from higher income employers and/or consumers Strong public support for redistributional goals of minimum wage – Note that Conservative government did not increase minimum wage during 8 year term of office, but it also did not abolish the minimum wage 19 UT of Minimum Wage Debate: Overview Anti-Minimum Wage: The minimum wage does not prevent everyone from getting any job. But the minimum wage does make it more difficult for those who already have a hard time getting a job - the least skilled - to begin or continue a career. Passing a law that forces people to earn a minimum amount in order to work seems a cruel policy in an already cruel world? – ~Donald R. Deere Pro-Minimum Wage: Our findings suggest that the efficiency aspects of a modest rise in the minimum wage are overstated.... [W]e find no evidence for a large negative employment effect of higher minimum wages. Even in the earlier literature, however, the magnitude of the predicted employment losses from a much higher minimum wage would be small: the evidence at hand is relevant only for a moderate range of minimum wages, such as those that prevailed in the U.S. labor market during the past few decades. Within this range, however, there is little reason to believe that increases in the minimum wage will generate large employment losses. – ~David Card and Alan B. Krueger, Myth and Measurement: The New Economics of the Minimum Wage, (Princeton: Princeton University Press, 1995, p. 393). 20 UT of Employment and Distributional Effects of Minimum Wage As you can see, there is considerable debate in the economics literature over the impact that minimum wages have on employment There is also debate over the effectiveness of the minimum wage in reducing poverty These issues will be addressed in IRE339H (Labour Market Policies). There is also Appendix slides with more information on impact of minimum wages (see slides 81 to 96) 21 UT of Economic Environment: Outline Demand for Labour Raising the Minimum Wage Deindustrialization Supply of Labour Labour Force Participation and Hours of Work Aging of the Population & Mandatory Retirement Women in the Workforce Non-Standard Work The Productivity Paradox 22 UT of Deindustrialization Refers to the shift of employment from manufacturing and other goods production to the service sector and even ‘new economy/4 th industrial revolution’ jobs – 70% of employees now in service sector where wages and benefits are (generally) lower than (they were) in manufacturing Concern that unionization rates and wages may be lower and more unequal in the service sector (“McJobs” is now in the Oxford Dictionary) 23 UT of Deindustrialization 24 UT of Deindustrialization 25 UT of Deindustrialization ‘consequences’ In the US, states with the highest rates of drug overdose deaths are also states where the deindustrialization hit hardest (i.e., the Rust Belt), where people lost good paying jobs and economic hope 26 UT of Causes of deindustrialization Rising living standards have led to an increase in the consumption of both goods and services, however, consumers’ preferences for services have increased faster than their preferences for goods Productivity growth is higher in goods industries (need fewer employees) than in service industries which are more labour-intensive and are less easily replaced by technology Demand for labour in Canadian manufacturing has declined as production has shifted to countries with lower labour costs – offshoring 27 UT of Deindustrialization: Implications Many jobs in the goods sector are high-paying and unionized blue-collar jobs, whereas many of the service-sector jobs are lower-paying and often non- union – union dues less affordable/less provident However, there are also high-paying union jobs in the service sector, e.g., teachers, pilots, doctors, etc. and these jobs tend to be safer and have higher overall job satisfaction Conclusion: in general effect of deindustrialization is mixed, but for low skilled, less educated workers, it has been devastating 28 UT of Economic Environment: Outline Demand for Labour Raising the Minimum Wage Deindustrialization Supply of Labour Labour Force Participation and Hours of Work Aging of the Population & Mandatory Retirement Women in the Workforce Non-Standard Work The Productivity Paradox 29 UT of Lab Force Participation Rate Labour force (LF) includes both the employed (E) and unemployed (U): LF = E + U. For Canada, 2006: LF = 16.5 million + 1.1 million = 17.6 million. Labour force participation rate (LFPR) is defined as the percentage of the working age (i.e., age 15+) population (POP) who are in the labour force: LFPR = (LF/POP)*100. For 2006: LFPR = (17.6 million / 26.2 million) = 67% 30 UT of Lab Force Participation Rate Labour force (LF) includes both the employed (E) and unemployed (U): LF = E + U. For Canada, 2019: LF = 18.92 million + 1.15 million = 20.7 million. Labour force participation rate (LFPR) is defined as the percentage of the working age (i.e., age 15+) population (POP) who are in the labour force: LFPR = (LF/POP)*100. For 2019: LFPR = (20.7 million / 31.5 million) = 65% 31 UT of Unemployment Rate Unemployment rate (UR) is defined as the percentage of lab force that is unemployed: UR = (U/LF)*100. For 2006: UR = (1.1 million) / 17.6 million) = 6.3% UR = (U/LF)*100. For 2019: UR = (1.15 million) / 20.7 million) = 5.5% Q: Is 5.5% “low” or “high”? 32 UT of Unemployment Rate 2009-2019 33 UT of Unemployment Rate 1967-2019 34 UT of Unemployment Rate Unemployment rate (UR) is defined as the percentage of lab force that is unemployed: UR = (U/LF)*100. For 2006: UR = (1.1 million) / 17.6 million) = 6.3% UR = (U/LF)*100. For 2019: UR = (1.15 million) / 20.7 million) = 5.5% Q: Is 5.5% “low” or “high”? A: Depends on how long a window you look at and external conditions like number of youth in the labour market, etc. 35 UT of Unemployment Rate Unemployment rate (UR) is defined as the percentage of lab force that is unemployed: UR = (U/LF)*100. For 2006: UR = (1.1 million) / 17.6 million) = 6.3% UR = (U/LF)*100. For 2019: UR = (1.15 million) / 20.7 million) = 5.5% Q: What is the unemployment rate in Canada now? 36 UT of Economic Environment: Outline Demand for Labour Raising the Minimum Wage Deindustrialization Supply of Labour Labour Force Participation and Hours of Work Aging of the Population & Mandatory Retirement Women in the Workforce Non-Standard Work The Productivity Paradox 37 UT of Aging of the Population Median age of the working population is rising Baby-boomers born between1947-1959 – Leading edge of boomers (born in 1947/48) reached “normal” retirement age (i.e., about 65 years) in roughly 2013 – Back end will reach 65 in 6 years (i.e., 2025) Median age of LF: – 1961 = 38.7 yrs 1981 = 36.5 yrs – 2001 = 41.3 yrs – 2020 = 43.7 yrs 38 UT of Aging of the Population 39 UT of Aging of the Population https://www12.statcan.gc.ca/census-recensement/2016/dp-pd/pyramid/pyramid.cfm?type=1&geo1=01 40 UTof Aging of the Population Population aged 0 to 14 years and 65 years and older, 1998 to 2018 (estimates) and 2019 to 2038 (projections), Canada 41 UT of Aging LF: Implications Implications for of aging LF for LR: What do older workers want? – Concern with pensions, health care, etc. Promotion opportunities limited – Upward vs lateral or spiral career paths Labour shortage in future? Mandatory retirement (MR) issue increasingly important 42 UTof The IR Systems Framework - Law External Internal Conversion Actors Outcomes Environments Inputs Mechanisms - Union Gov’t Recognition Economic Goals and Security - Certification Political Values - Collective - Bargaining Mgmt Agreement Legal Power - Mediation / - Due Process Arbitration Social Union History - Strikes / Lockout Feedback loop to Internal / External Inputs 43 UT of Mandatory retirement (MR) & HRC Mandatory retirement (MR) refers to an employer policy that requires employees to retire at a fixed age, typically 65 years. – There has never been a law forcing people to retire at 65, but employers were permitted to require this in the past The Ontario Human Rights Code (HRC) prohibits discrimination on the basis of age, which would make MR illegal since it is obviously age discrimination But, up until Dec 2006, the age discrimination provision in HRC was subject to a “cap”: – “Age” was defined as meaning an employee between 18 and 64 – This cap allowed MR at 65 in Ontario to continue to 2006 44 UT of MR & the Charter of Rights Age discrimination also prohibited under the Canadian Charter of Rights and Freedoms (the constitution) – but the Charter contains a “reasonableness test” – i.e., discrimination is allowed if it can be shown to be “reasonable in a free and democratic society” The Supreme Court of Canada, in a 1990 case, ruled that the “cap” on the age discrimination provision in the Ontario HRC was discriminatory, but it was reasonable for the Ontario government to impose the cap This ruling allowed MR to continue in Canada – A political decision whether to prohibit MR in each province The rationale for Supreme Court’s decision was that abolition of MR might have wide-ranging impacts on the IR system (such as jobs for new LF entrants, costs of public pensions, productivity, etc.) 45 UT of Changes to Ontario MR legislation The Ontario Human Rights Commission in 2001 recommended that the age cap in the HRC be removed, which would effectively end MR in Ontario (A Time for Action: Advancing Human Rights for Older Ontarians, Ontario HRC, 2001) In April 2003 the Ontario Conservative gov’t announced they planned to scrap MR if re-elected In Dec 2005 the Ontario Liberal govt passed legislation abolishing MR effective Dec 2006 Exemption for bona fide occupational requirement (e.g., police, air traffic controllers, firefighters, etc.) 46 UT of Impact Of MR Ban On “Youth Jobs” Banning Mandatory Retirement may reduce job opportunities for youth entering labour market (because workers stay in the workforce longer not making room for younger workers) Seems like a compelling argument, but economists refer to it as the “lump of labour fallacy” because it implicitly assumes that the number of jobs in the economy is fixed Also, does a 65-year-old and a 25-year-old do the same work? Probably not, so there is a theory called “segmented labour markets” which says not all workers are created equal - you can substitute capital (e.g., one Dell computer for another) and it would not matter, but you cannot just substitute labour (e.g., one older worker for a younger worker) as easily Economic theory also suggests that a larger labour force results in increased spending and demand for labour, and no change in the unemployment rate, in the long-run Evidence: From Australia (and elsewhere) supports prediction of no impact on youth unemployment from banning MR 47 UT of OTHER IMPLICATION OF ABOLISHING MR Do some of your own research “i.e., Google Search” on the following topics and write down what you find: “What are the implications on abolishing MR on the following outcomes?” Number of workers who will work past 65 Pension provision modifications Class action lawsuits Competency tests Productivity impacts 48 UT of OTHER IMPLICATION OF ABOLISHING MR What are the IR and HR impacts of a ban on MR? – In IRE339H (Labour Market Policies) theories of why mandatory retirement existed will be discussed – In light of these theories, the impacts of banning mandatory retirement will also be assessed 49 UTof The IR Systems Framework - Social External Internal Conversion Actors Outcomes Environments Inputs Mechanisms - Union Gov’t Recognition Economic Goals and Security - Certification Political Values - Collective - Bargaining Mgmt Agreement Legal Power - Mediation / - Due Process Arbitration Social Union History - Strikes / Lockout Feedback loop to Internal / External Inputs 50 UT of Social Forces Social forces are incredibly important factors that also shape the way that labour markets and labour relations outcomes play out For example, countries with more “communitarian and group norms” as opposed to “individualistic and competitive” norms have higher rates of unionisation (e.g., Sweden vs UK vs US) We will look at a few social forces that have important implications for labour markets 51 UT of Economic Environment: Outline Demand for Labour Raising the Minimum Wage Deindustrialization Supply of Labour Labour Force Participation and Hours of Work Aging of the Population & Mandatory Retirement Women in the Workforce Non-Standard Work The Productivity Paradox 52 UT of Women in the Workforce Share of women in the labour force has risen from 34% in 1970 to about 47% in 2006 Due to rising labour force participation by women and a trend toward earlier retirement by men (declining LFPR) – Male LFPR aged 25-54 = 96% in 1954 – Female LFPR aged 25-54 = 24% in 1954 vs. – Male LFPR aged 25-54 = 91% in 2014 – Female LFPR aged 25-54 = 82% in 2014 53 UT of LFPR Men vs. Women in Canada, 1953-2013 54 UT of Women in LF: Implications Implications of rising female LF share for LR: – Growing importance of pay equity and employment equity Females earned 72% of male earnings on avg in 2002 (Full-year, full-time) Statistics Canada The gender wage gap remains significant today – Sexual harassment, systemic discrimination – Daycare, job-sharing, maternity leave, pensions, etc. 55 UT of Part-time work: definition Statistics Canada definition of part-time work A person who works less than 30 hours per week at their main job. – Formerly defined as normally working less than 30 hours at all jobs – In the 1950s, PT defined as working less than 35 hours Magnitude of the change Part-time employment rate has increased steadily from about 4% in the mid-1950s to 18% in 2006 or about one in five employees. 73% “voluntary” PT in 2002 56 UT of PART-TIME WORK: REASONS FOR RISE What are the reasons for the steady rise in part-time work? Think of some reasons and list them here, before we move on 57 UTof PART-TIME WORK: REASONS FOR RISE Reasons such as: – Increase in women’s labour force participation (labour supply) – Growth of the service sector led to an increase in the demand for part-time employees to meet peak demands as services cannot be stored as easily as can goods (labour demand) – More people working in smaller firms where competition is greater and output more volatile leading to less full-time employment (labour demand) 58 UT of Part-time work: Implications Part-time work is usually compensated at lower levels even though part-timers’ productivity is generally equal to or higher than that of full-timers Lower compensation of part-timers is seen as a threat to employment and compensation of full- timers Part-time workers are more difficult to organize into unions – more fragmented/divided 59 UT of Non-Standard Work - Definitions Non-standard work includes part-time and contingent work Contingent work includes casual, term, contract, temporary and seasonal jobs – Provides flexibility in responding to fluctuations in demand Non-standard work comprises about one-third of the LF Gig economy trend steadily increasing 60 UT of Non-Standard Work - Numbers 61 UT of 62 UT of Non-Standard Work - Numbers 63 UT of Non-Standard Work - Numbers 64 UT of Non-Standard Work – Market Trends Table: The Changing Job Market 1950s to 1970s 1980s and 1990s Present Employee “cradle to grave” uncertainty due to mergers small group of core employees employment with same and layoffs firm Career Growth upward mobility inside mobility through jobs sideways advancement in that the one large firm hopping to different firms you move in your role to new employers Employer individual company nationally formed "strategic "virtual corporations" a dealing locally, regionally alliances" in trade zones, number of international, cross- or nationally long-term commitments with industry companies coming international suppliers together for a specific contract, then dissolving e.g., Weil, D (2014) Fissured Workplace (see link to 2016 Sefton-Williams Lecture) https://cirhr.library.utoronto.ca/sites/cir hr.library.utoronto.ca/files/sefton_lectu res/SeftonWilliamsLecture_2nd_2016_ Weil.pdf 65 UT of The “Fissured Workplace” An important development over the last 30 years, so called “fissuring" means companies that have a well known brand but really outsource most of their work to “third parties” and therefore have very few “employees” of their own (e.g., a small “core” in head office) This means that workers may be working in one workplace but have many employers - hotels have used this model, e.g., “Hilton” outsources the cleaning, kitchen, security, and concierge services to third parties, but they all wear same uniforms and look like “Hilton” employees e.g., Weil, D (2014) Fissured Workplace (see link to 2016 Sefton-Williams Lecture) https://cirhr.library.utoronto.ca/sites/cirhr.library.utoronto.ca/files/sefton_lectures/SeftonWill iamsLecture_2nd_2016_Weil.pdf 66 UT of Weil (2014) Fissured Workplace 67 UT of The “Fissured Workplace” Fissured workplaces means that “lead/head employer” such as Hilton are not really the “true” employers paying workers paycheques, etc. If a worker gets hurt on the job the “lead” can say that is “not my problem as you are not my paid employee” Also, if a union wants to “organize hotel workers” how can they do it if there is not one employer at the Hilton downtown hotel, but four or five? This type of business model thwarts union organizing and collective bargaining 68 UT of Economic Environment: Outline Demand for Labour Raising the Minimum Wage Deindustrialization Supply of Labour Labour Force Participation and Hours of Work Aging of the Population & Mandatory Retirement Women in the Workforce Non-Standard Work The “Productivity Paradox” 69 UT of The Productivity Paradox Famous quote: “We see the impact of computers everywhere except in the productivity statistics” The paradox refers to productivity growth in the 1990s (when computers proliferated) was the lowest since the 1960s [see Graph next slide] Productivity growth was lower in sectors with higher investment in information technology 70 UT of The Productivity Paradox Figure 1: Productivity Growth 1970-2015, Canada Source: OECD Data, accessed June 2018. 71 UT of EXPLAINING PRODUCTIVITY PARADOX Three explanations for Paradox: (Andrew Sharpe, CPP, 1997): Think of some ideas and write them down, before seeing the list on the following slide 72 UT of EXPLAINING PRODUCTIVITY PARADOX Three explanations for Paradox: (Andrew Sharpe, CPP, 1997): 1. The Mis-measurement Hypothesis i.e., “the benefits are here” 2. The Lag Hypothesis i.e., “the benefits are coming” 3. The Computers are Overrated Hypothesis i.e., “the benefits are never coming” 73 UT of EXPLAINING PRODUCTIVITY PARADOX Which of the three explanations has been found to be most credible? 74 UT of EXPLAINING PRODUCTIVITY PARADOX Three explanations for Paradox: (Andrew Sharpe, CPP, 1997): – The Mis-measurement Hypothesis i.e., “the benefits are here” – The Lag Hypothesis i.e., “the benefits are coming” – The Computers are Overrated Hypothesis i.e., “the benefits are never coming” 75 UT of EXPLAINING PRODUCTIVITY PARADOX Two of the explanations for Paradox: now appear to be true – The Mis-measurement Hypothesis i.e., “the benefits are here you just need better measures in service industries where productivity is harder to capture than a factory producing products” – The Lag Hypothesis i.e., “the benefits have come, just a little later than expected because of learning!” (Bloom and Van Reenan, 2010) People needed time to be trained to “catch up” to the technology - good HR boosts IT productivity benefits New generation of workers (born after 1980) brought up with IT is better at using and developing IT 76 UT of This paper by Bloom and Van Reenan (2010) showed that it took a new generation (born after 1980) of tech-savvy workers to be able to use technology better. Also better HR managed firms use technology better (see graph on next slide). 77 UT of 78 UT of 79 UT of 80 UT of Next lecture- 03 Legal Environment 81 UT of Appendix Slides Minimum wage debate issues (IRE 339) 82 UT of Special categories of minimum wage Students under 18: $0.50/hr less than general min wage Liquor servers: About $1.00/hr less than general minimum wage Homeworkers (i.e. EEs paid to do work in their own home): 110% of general minimum wage http://www.labour.gov.on.ca/english/es/pubs/guide/minwage.php 83 UT of WHO WORKS AT MINIMUM WAGE? What percentage of minimum wage employees are teenagers? To be discussed in class. 84 UT of WHO WORKS AT MINIMUM WAGE? Almost half of minimum wage workers in Canada are teenagers (aged 15 to 19) Two-thirds of minimum wage workers are under 25 Two-thirds of minimum wage workers live with their parents or another family member 60% of minimum wage workers are part-time 85 UT of WHO WORKS AT MINIMUM WAGE? READ… Minimum wage workers http://www.statcan.gc.ca/pub/75-001-x/10304/6824-e ng.htm 86 UTof Rationale for Min Wage Despite (historical) mainstream economic opposition to minimum wages they exist in almost all jurisdictions. Why? Reduction of poverty and a more equitable distribution of income – i.e. intention is to redistribute income to relatively low wage minimum wage employees from higher income employers and/or consumers Strong public support for redistribution goals of minimum wage – Note that Conservative government did not increase minimum wage during 8 year term of office, but it did also did not abolish the minimum wage 87 UT of Minimum Wage in comp market W In a competitive S Unemployment labour market, eqm W* at We and Le. E At minimum wage We W* employment is reduced to L2 and D quantity of labour supplied rises to L1. L2 L L1 L e 88 UT of Minimum wage theory 89 UT of Emp effects comp labour market When a minimum wage is introduced in a competitive labour market, the size of the employment reduction depends on the steepness of the labour demand curve i.e., the number of jobs lost depends on the elasticity of demand for labour – defined as the percentage decrease in employment in response to a one percent increase in the wage rate – Conversely for a wage decrease 90 UT of Elasticity of Demand: evidence Empirical Evidence (Hammermesh 1993): – Evidence indicates that on average the elasticity of demand for labour is about -0.3 (for a one year time horizon). – Put another way, a 10 percent increase in labour costs would reduce employment level by about 3 percent (other things being constant). 91 UT of Non-Competitive Markets Quantity adjustments (layoffs) more common than wage reductions when demand decreases. – EEs: fear of inequities – ERs: reduce morale and productivity Employers are often wage setters rather than wage takers in labour markets As a result, many employers have some degree of monopsony power (i.e., economic power) – Can result in a wage below the competitive wage – Pure monopsony means only one employer 92 UT of Min wage in non-comp market When employers have some monopsony power, however, it can be shown that a moderate increase in the minimum wage can actually increase employment (because the employer becomes a wage taker) Employment will increase to the competitive level as long as the minimum wage is set below the equilibrium wage 93 UT of Monopsony changes things… Wm = Monopsony wage; Wmin= Minimum wage; W’=Wage paid to workers that equals their productivity. 94 UT of EVIDENCE ON IMPACT OF MINWAGE What is the impact of a higher minimum wage on employment? To be discussed in class. 95 UT of EVIDENCE ON IMPACT OF MINWAGE Impact of a higher minimum wage on employment: Evidence on employment effects is ambiguous. Evidence up to 1992 (using time series methodology) suggested a negative impact. Survey evidence suggests little impact. Card & Krueger (1992,1995), using “quasi- experimental” methodology in the U.S., show no decrease in employment in state which increased minimum wage relative to neighboring state which did not raise it. 96 UT of EVIDENCE ON IMPACT OF MINWAGE 97