The Broadbent Blog


Sheila Block: Austerity agenda will increase labour market inequality

responses-block_0.pngThis is the final section of a three-part commentary by Sheila Block on our Equality Project report. Read part one and part two.

Governments at all levels in Canada have embarked on an austerity agenda that includes reducing public sector employment and efforts to privatize public services. This policy direction will slow economic growth, harm the quality of public services, and the loss of services will have a larger impact on low-income Canadians than higher income Canadians. Along with these other impacts, this austerity agenda will increase income inequality.

Workers in lower-paid occupations — such as cleaning, food preparation, and clerks — are generally better paid in the public sector than in the private sector. A cook working in the public sector was paid an average of $26,216 a year in 2006, which is 24 percent more than the $21,089 average received by private sector cooks. On the other hand, higher-paid occupations — such as managers, lawyers and accountants — tend to be paid considerably less in the public sector than in the private sector. For example, engineering managers in the public sector were paid an average of $93,514 in 2006, which is 27 percent below the average of $128,886 in the private sector. As a result, higher-income public sector workers who lose their jobs have better prospects in the private sector than lower-income workers who lose theirs.

These policies also have a differential impact by gender. Women comprise just over 62 percent of Canadian public sector employees, and about 46 percent of private sector employees. The impact of layoffs will be compounded by the differences in wages for women in the public and private sectors. On average, women employed in public sector jobs are paid 4.5 percent more than women in comparable occupations in the private sector, $45,821 compared to $43,841. Women who are laid off from the public sector will likely have difficulty finding employment with similar remuneration, Men in the public sector are paid an average of 5.3 percent less than in the private sector: $57,318 compared to $60,531. As a result, a decrease in public sector employment will tend to widen the gap between men and women’s wages.

The impact on women’s remuneration is not limited only to direct job losses. Shifts in the method of public service delivery will also have a disproportionate impact. Private delivery of services will move women to more precarious employment situations, where they are less likely to be unionized and typically have lower compensation.

Caregiving makes up a substantial portion of public services. When these services are reduced, the responsibility falls on disproportionately on women to pick up the slack. In 2005, Canadian women spent two hours more per day than men on unpaid work. In 2010, Canadian women spent an average total 50 hours per week caring for household children, double that spent by men. The loss of public services will increase unpaid work for women while reducing their remuneration and opportunities for paid work.

The burden of reductions in public services, loss of public sector employment, and privatization of public sector employment falls more heavily on women than on men. Reduced employment in the public sector and privatization that shifts employment from better paid unionized jobs with pensions and benefits to more precarious work will increase inequality in Canada.

Conclusions

Governments have a powerful array of policies that they can use to reduce income inequality in Canada; one of these is labour market policies. Increasing bargaining power of workers at the bottom of income distribution reduces income inequality in a number of ways. It will reduce inequality along gender and racial lines. It will increase incomes at the bottom of the labour market and reduce poverty. Finally, redistributing national income from profits to wages, will reduce incomes at the top, further reducing income inequality. Three ways that governments can act are: modernizing labour legislation to enhance equality and protect workers, reducing employers’ access to an exploitable migrant workforce, and maintaining the quality of public sector employment.

Sheila Block is the Director of Economic Analysis at the Wellesley Institute in Toronto.