The Broadbent Blog

Sheila Block: Reducing Labour Market Inequality in Canada, Three Steps at a Time

responses-block.pngThis is the first section of a three-part commentary by Sheila Block on our Equality Project report. Stay tuned over the coming weeks as we release parts two and three.

The Broadbent Institute paper provides an overview of the complex range of causes of Canada’s increased income inequality. They range from changes in how economic activity is organized and located internationally to domestic policy decisions.  Some, like changes in patterns of international trade and production or technological change, can make the problem seem very large and intractable.  That is why it is particularly important to identify those government policies that have contributed to increased inequality. These policies that concentrated wealth and power in the hands of the few to the detriment of the many were not inevitable. The politicians who implemented them made choices, and those choices can be reversed. Reversing these policy decisions is an important step to addressing inequality in Canada.

The labour market is an important contributor to increasing income inequality in Canada. Statistics Canada data shows that inflation-adjusted earnings of the bottom 20 percent of workers fell by 21 percent between 1980 and 2005, while the earnings of the top 20 percent increased by 16 percent. Research on the Ontario labour market shows a shift to an hourglass shape, with an occupational distribution concentrated at the high and low ends, and a disappearing middle. Recent academic research supports these results, showing a reduction in mid-level occupations and increased wage inequality across occupations. Wages at the top of the occupational distribution increased relative to those in the middle, wages in the middle grew relative to those at the bottom, and wages at the bottom declined in absolute and relative terms.  Increasing numbers of workers and an increasing share of the total labour force are at the bottom of that hourglass and endure low incomes and increased insecurity.

Much of the recent focus on increased inequality has been at the top of the income scale; these are important stories to tell but they are also easier to tell: rapacious financiers, powerful Bay Street lawyers, and physicians who hold our lives in their hands; or, the glamorous lives of the rich and famous. The stories of those of us who are left behind are more complex. But the fact that these stories are harder to tell does not mean that they should be ignored.  

This note looks at three policy initiatives that would improve working conditions for lower-income Canadians. Reflecting on the complexity of these issues, this would require action at all three levels of government. Two out of the three initiatives require changes in legislation or regulations and would therefore not have any impact on government budgets. However, all require political will to take on both established orthodoxy and vested interests.

The first initiative is to reverse the changes to the federal Temporary Foreign Worker Program that have been implemented since 2006. These changes have a negative impact both on the workers who come to Canada through this program, and on the broader labour market.  

The second is to update labour relations and employment standards legislation. As this legislation has not been updated to reflect changes in the labour market, it no longer provides protections to workers who need it.

Finally, the quality and quantity of public sector jobs is an important policy tool in mitigating income inequality, and in particular supporting women’s employment and incomes. Public sector work is both important to maintain social services that women require to participate in the paid labour force, and as a source of good jobs and incomes.

Reverse Changes to Temporary foreign workers program

Under the federal Temporary Foreign Workers Program, workers come to Canada for a short period, generally without future prospects for immigration or citizenship. These workers are unable to defend and protect their workplace rights. Because their presence in Canada is tied to an individual employer, attempts to enforce their rights will likely result in deportation. The rights violations and abuses of workers brought to Canada under this program have been well documented.

The current federal government has increased the number of workers coming to Canada under this program. In 2011, more people entered Canada as temporary foreign workers than as permanent residents. The number of temporary foreign workers in Canada has more than doubled since 2006. A number of new administrative and regulatory changes have made it easier for employers to bring this vulnerable workforce to Canada. The changes to the program have increased the potential for abuse and exploitation. Two policy changes will have particularly negative impacts both on workers in Canada under this program, and for other workers in low-paid and precarious work.  

The first policy change, implemented in 2011, is the requirement that low skilled temporary foreign workers workersmust leave Canada for 4 years, if they have worked here for 4 years.  Universal experience with ‘guest worker’ regimes shows us that they fail: a significant proportion of workers do not leave when their work permits expire.  The predictable and inevitable result is the manufacture of an ‘illegal’ immigrant population in Canada who will be enormously vulnerable to exploitation. In the spring of 2012, the government made further amendments to the program. While the previous rules required foreign workers to receive the “average wage” paid to Canadian workers in the same region, the new rules will allow employers to pay up to 15 per cent less than that average wage. This will put downward pressure on wages for all workers in Canada.

The recent amendments are harmful from a human rights perspective, as well as to longer-term economic and social development. Further, the harm from these amendments is not limited to workers in Canada under this program, but extends to other marginalized workers, including many recent immigrants. As non-renewable permits under the program expire, there will be a growing undocumented workforce in Canada who will be working without access to any legal protection, and therefore for less than legislated minimum standards.  The introduction of these workers into the labour market will also push down wages and working conditions for workers with status, who will have to compete with undocumented workers for jobs.  Similarly, workers with permanent status will be competing with workers in the Temporary Foreign Workers Program, whose rights cannot be enforced and whose employers will be legally sanctioned to pay them below the prevailing wage.

The objective of the Temporary Foreign Workers Program is to alleviate labour shortages. The basics of supply and demand tell us that labour shortages can also be remedied by an increase in wages. Increasing wages would reduce income inequality in two ways: first, by putting more money into low wage workers pockets; and, second, by increasing the share of national income going to labour rather than to profits.

Instead, the federal government has chosen a policy that increases inequality. Increasing the supply of labour through the temporary foreign worker program will mitigate any increase in wages. Allowing these additional workers to be paid less will reinforce this trend, and implementing a policy that will result in an undocumented workforce who do not have any rights will further push down wages. Reversing these policy changes to the Temporary Foreign Workers Program will contribute to reducing income inequality in Canada.

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