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Article Excerpt
In a celebrated article, Richard Freeman (1995) asked whether workers' wages around the world are now set in Beijing. Wages, however, are only one dimension, albeit an important one, of workers' compensation, and even a partial answer to Freeman's question must take account of the extent to which forces of globalization affect a broad range of workplace characteristics. Those include who can work, when, for how long, and under what conditions. For both unionized and non-unionized employees, in the public and private sectors, these work conditions are often regulated by labour and employment standards. Although research on the sensitivity of Canadian labour standards--and social policy in general--to economic integration is still in its early stages, two schools of argument have emerged. (1)
One strong view is that, increasingly, the direction of labour and social policy will be set outside of Canada, leading to a potential race to the bottom in conditions of work. Like the prices of traded goods that are set in global markets, labour standards will tend to be set internationally to ensure a level and competitive playing field. But there is another view. The historical record across the leading industrialized countries in Old and New Worlds reveals that past pressures to ratchet down labour standards have not materialized. As incomes and levels of openness rose during the twentieth century, national authorities steadily improved labour laws, ranging from more holiday time to greater protection against workplace hazards. These conflicting interpretations of whether labour standards in the future will follow a race to the bottom or to the top leave the issue an open question.
This Commentary will analyze how Canadian labour standards, broadly defined to include laws concerning the benefits, conditions and restrictions on work of unionized and non-unionized employees, will fare in the new global economy. I will address two basic questions: What in fact is the relationship between trade and labour standards? And if labour standards are sensitive to trade is a race to the bottom inevitable?
My answer to these questions will draw on the historical evolution of labour standards at the provincial level in Canada. This approach can be justified. Many of Canada's labour standards have long historical roots; indeed, some of these regulations have become embedded and have proven difficult to scrap or to modify. Often they have been left in place even when they have been proven to be unenforceable or simply outdated. These standards have been historically set at the provincial level, despite the fact that the federal government is responsible for negotiating trade agreements and honoring standards set by the International Labour Organization (ILO). The question of jurisdiction would itself not be problematic if there was a degree of standardization across provinces, but even a cursory glance at labour laws suggests that there are clear differences, such as those that exist between Alberta and Quebec, concerning replacement workers during strikes.
As a result, to make sense of the effects of globalization pressures on Canadian workers' welfare, it is essential to examine its impact at the provincial level. That said, there is an upside to provincial control--at least from the researcher's perspective. (2) In analytical terms, the provinces can be seen as 10 separate states that have developed unique labour codes since joining the federation; in this perspective, inter-provincial trade can be used as a proxy for international trade. Based on the historical relation between standards and trade at the provincial level, we can envisage how Canadian standards will fare in the future.
Overview
This paper begins with a brief account of the evolution of provincial and national labour standards.
For the first 100 years after Confederation, if not longer, there was a strong tendency toward harmonization across provinces, a result of common legal origins and the forces of emulation, and also of the long-established and stable trade environment. Into the 1980s, with industry protected by a tariff wall and with an uncontested control of the market, Canada's leading provinces had considerable leverage in raising labour standards--without compromising inter-provincial trade--because any increase in labour costs associated with rising standards was passed on to domestic consumers. Since all provinces had this incentive, harmonization was the result. This was a type of race to the top.
The tendency toward convergence broke down in the mid-1980s, a development that I trace to the change in the trade environment measured by the increase in the degree of international economic integration. In an open economy, the rules of trade are different. Companies can no longer set prices and pass on increases to consumers. As a result, each province sets labour standards in accordance with its own preferences and perception of costs. As long as workers and companies were protected by tariffs, standards did not impede inter-provincial trade flows and there was a tendency to ratchet up standards; in the absence of protection, the costs of regulation are borne directly by the local population and labour standards are more sensitive to trade. Where initial conditions, incomes and tastes are comparable, regions may choose similar labour standards; however, if regions are different, greater diversity in standards among provinces is the result.
The historical record of provincial labour standards mimics the relation between trade and labour among countries and anticipates the likelihood of international convergence in these standards. In an open-economy setting, each country must set its own criteria in line with its own needs. Globalization has forced national and sub-national authorities to become more attuned, as they should be, to the costs and benefits of labour standards. Still, because costs and benefits differ among units as economies become more integrated, gaps in standards may actually widen. There are good theoretical reasons for this diversity, even in the face of strong international pressure.
Like the provinces, a national authority might choose a package of superior labour standards to encourage high value-added production and exports, and to attract high-quality workers. However, in the low-priced-goods sector, it would be difficult for Canada to preserve comparable types of labour standards. (This begs the question why Canada should be devoting resources to this type of production in the first place.) Altogether, the empirical findings of this paper and others, at both the provincial and national levels, support the view that Canada has opted to preserve, if not improve in some cases, its labour standards and that this strategy has not proven to be inimical to trade and other measures of economic performance. Trade specialization has produced divergent labour standards, while increasing diversity has promoted further specialization.
The distinction between absolute and comparative advantage gives another perspective on these findings. While absolute advantage provides a measure of the cost advantages of one economy compared to another, it is the latter that determines trade flows. Undoubtedly, increased regulation damps market share at the company level, when costs cannot be shifted to consumers or workers, and reduces absolute advantage. That said, the impact of increased regulation on comparative advantage is not as evident. If national and provincial authorities set standards that best fit domestic considerations, then because all authorities invest in these types of public goods, there is no evident reason to expect that labour standards impinge on economic and trade performance. I conclude that Canadian labour standards are not set in the Third World. (3)
Labour Standards in Canada: Types, Origins and Causes
Labour standards can be organized into those that protect basic, civic, and security rights, and those that concern the quality of life or security rights (Table 1). The first two can be conceived as core rights, deriving from some shared universal moral imperative, such as the prohibition of slavery and child labour. These standards, like the right to organize, govern processes. Survival and security rights dictate results, such as fixing the number of workdays. They are more complex in origin, and they are discretionary. Neither core nor discretionary rights are static, however.
On the demand side, changes in the composition of the labour force and changes in income and tastes have led to new forms of regulation. On the supply side, organizational and technical changes, and the related changes in worker and company behavior, have altered the costs incurred by authorities in monitoring and enforcing labour standards. It is precisely their uneven evolution across space and time that has provoked the debate over whether divergent labour standards are unfair because they are a source of advantage for one company or country over another.
Modern labour standards in Canada have their origins in Western Europe, a consequence of the social and economic effects of industrialization. Periods of rapid economic change created costs and unanticipated consequences that were not always borne directly or incurred by those involved. To correct for externalities that would have gone unchecked by individual employers and workers, national authorities, seeking to maximize the welfare of their constituents, whose political voice was growing louder with the extension of the franchise, were compelled to introduce labour standards. (4) As is the case today, early labour standards were mandatory--a type of pubic good--though they were often restricted to certain branches of employment and types of workers, rendering any aggregate or comparative assessment hazardous.
From the outset there was concern about the potentially adverse impact of labour standards on trade. Foreshadowing twenty-first century concerns, Otto Bismarck, the father of German social insurance, as well as the first cohesive German state, defended his protectionist policies on the grounds that "a normal workday could be established for Germany alone, if Germany were surrounded by a Chinese wall and were economically self-sufficient" (Huberman 2004).
Many European countries emulated the policy leaders of the period, Britain and Germany. And, partly because of the rise of incomes throughout the continent, as well as common social and religious terms of reference, core standards, such as those prohibiting slave and child labour, were universally adopted. (5) The period also featured much experimentation in the delivery of social policy, while openness and economic integration actually rose with the introduction of factory and employment regulations (Huberman and Lewchuk 2003).
National authorities set standards in accordance with their own needs and perceptions of costs. Labour standards attached themselves to industrial or product specialization and, as the growing diversity of international trade before 1914 attests, comparative advantage was not threatened. Companies in highly regulated countries moved to higher value-added products. Reflecting on the relation between trade and the level of labour standards in the early period, the celebrated trade theorist, Bertil Ohlin (1965, p. 83), observed that "trade will adapt itself to differences in the social milieu in the same way it does to differences in climate [my...
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