It seems wherever I read the news, I find more attempts to reduce workers wages—and they are usually successful. The CEO of GM Canada says we are the most expensive place in the world to build cars because of the CAW’s rich union contract. Public employees all over the country are being given wage freezes or having their wages reduced as part of cutbacks in government spending—after all, they do have those “gold plated” benefit packages—and union shops in particular, but all workers in general, are being asked to make sacrifices due to the tough economic times.
Labour is a major expense in every employer’s bottom line and however you can lessen that expense helps the overall economy—or so they tell us.
What appears particularly odd about this situation is how popular it is. We seem to be cheering on the various companies, and governments, in their efforts to reduce wages. It’s as if we gain something from their loss—cheaper goods and services perhaps. Too bad it doesn’t work that way.
Every time a government or company is able to reduce the wages of an employee it has three distinct outcomes: First, it does raise revenue in the short run—emphasis on the short run. Second, it places in jeopardy the value of every worker in the company, or performing a similar task in another company, and creates an expectation that attempts will be made to lower their wages. And, finally, it reduces the purchasing power of the worker who had their wages cut.
There’s an old English parable called “The Tragedy of the Common” which I’m reminded of in these circumstances. It tells a story of how each rural village in “merry old England” at one time owned a common pasture where local landowners could graze their livestock at little or no cost. If it was well looked after, the sheep, goats, cows (not sure about pigs), and horses provided wool, meat, milk, and the power to plow fields and carry loads to marke—and in most cases it did work well enough to be sustainable. Unfortunately, on occasion, some residents would do a quick calculation and realize that each time they added an animal to the Common they received the benefit as individuals (as owners of the wool, meat, or offspring those animals produced), while the costs of supporting those animals was borne by everyone as equal owners of the Common. Therefore, it was in their best interests to add as many animals as possible with the goal of maximizing profits. The result, as you might expect, was that sooner or later the Common would be overgrazed and the entire village would suffer the losses.
Every time a worker is forced to work for less it may benefit the individual company, but who do you think is going to pick up their share of the extra taxes they would have paid, or the CPP and EI payments—or the jobs they would have sustained by having extra spending power? And as the trend cycles throughout the entire economy—and everyone’s taxpaying and buying power is reduced—eventually we even lose the ability to purchase the product of the companies who are cutting back on wages. Simply stated, in a minimum wage world who will be eating in the restaurants, buying new furniture and appliances, having renovations done to their house, or, indeed, buying houses? Low wages don’t include discretionary spending and a large portion of our economy relies upon those purchases. Of course, when we arrive at that point companies will no doubt be screaming that they need us to work for even less so they can stay afloat.
Real wages haven’t gone up in over a decade, some authorities say a generation, but many costs did go down due to the flood of cheap overseas products from countries where people work for pennies. This compensated by making us feel like we had more money. You don’t have to be very old to recognize that electronics, furniture, clothing, kitchenware—pretty much anything that can be bought at a Wal-Mart or Canadian Tire—has dropped significantly in price. At the same time, the transfer of our manufacturing capacity to developing nations has given the promise of increased prosperity to these nations and raised their standard of living as well as expectations. Now they are demanding more wages and healthier working conditions and the costs of those “cheap” goods are going up. The rest of the world can see, thanks to the revolution in media technology, how we live and they want a piece of the pie—in other words, more of what we already have.
By constantly being faced with what we are competing against, in this world economic contest, you might be led to believe that we have no choice but to accept less income. Otherwise, more of our prosperity will be heading east or south or wherever—and that has been the common scare tactic used by many international businesses. However, it should be remembered that the goal of the people in those countries is to have what we have and not to reduce us down to where they are. They want to achieve our standard of living. So where does it make sense to lower our wages to a point where we can’t keep buying their products, or sustain our homeland’s industries, or keep funding universal health care and world-renowned educational programs. We have consistently been rated one of the best countries in the world to live in because of our political and economic choices—one of which has been our emphasis on fair income distribution—and yet we are under intense pressure to change that focus in order to keep what we have. It simply doesn’t make sense.
Obviously, situations exist where people are getting more than they are worth, and that isn’t fair, but there are also people getting too little for what they accomplish, or is expected of them, and that doesn’t appear to bother us nearly as much—and why are we so intent on reducing the wages of middle class workers when top end salaries are in the millions and in some cases tens and hundreds of millions? Do you really believe there are people so far above and beyond the rest of us in ability and talent as to be worth that much on an annual basis—or that there’s nobody who could do just as good a job for much less? And believe it or not we pay their salaries too.
The need to compete with manufacturing in developing countries may seem like a good excuse for reducing wage packages but is it a good reason? Is it fair—and what kind of life will it leave us with? Everyone must judge for themselves but at least be aware that this is not a straight forward calculation, and just because one side of the argument is prevalent doesn’t make it the only alternative. The predominating argument could just as well be the opinion of many like-minded and well-funded individuals seeking what is best for their self-interest in the short term—and not taking into consideration what is best for everyone in the long term.
Ross Urquhart served as chair of both a large and successful environmental coalition and of a business development centre located in a resource-based region. He spent nine years as a municipal politician and subsequently managed a failed campaign for higher office. In between, Urquhart completed graduate work in both public administration and environmental studies. More recently, he has authored an e-book entitled Being Reasonable: Plain Talk for Living in the Future. Urquhart may be contacted through his website at www.ofbandg.com.