Dollars and Cents

A look at the increasingly polarized debate between business and labour about how best to attract and retain workers in the province.

In this 4-part series, looks under the surface of the rhetoric surrounding this province’s ‘labour shortage’ to piece together a series of snapshots of the shifting terrain of the labour market in Newfoundland and Labrador. In the first installment, we explored women’s experience in the skilled trades. Last week, we looked at the growing use of temporary foreign workers.

Part III

In the face of looming labour shortages, where can employers find the workers to fill the demand? Aside from the option of bringing in large numbers of temporary foreign workers at prevailing average wage rates (an option explored in last week’s installment), there are two obvious strategies: to retain workers who are already here (training or retraining them where the demand lies), or attract other Canadian workers (including expatriate Newfoundlanders and Labradorians outside the province working elsewhere). But how exactly to do that?

For Lana Payne and the province’s labour movement, the solution is clear: bring wages and benefits up to par with the rest of the country. Payne has drawn extensively on the work of labour economists like Jim Stanford who criticize the growing gap between corporate profits and wages in this province. In a recent Globe and Mail article, Stanford pointed out that despite the province’s strong and growing GDP, “Yet hourly wages are lower than the Canadian average. And personal incomes, shockingly, are still the second-lowest in the country – $5,000 per person per year less than the Canadian average. Workers’ share of provincial GDP (captured in wages and benefits) is lower than anywhere else.”

Indeed, a 2008 study revealed that between 2002 and 2007, corporate profits rose by 195% in Newfoundland and Labrador (almost four times the national average), while workers’ wages only rose by 42% during the same period.

“This shouldn’t be happening in a boomtown economy,” Payne says. “The wealth isn’t being shared around. In every other province, more of the GDP goes to wages and salaries, here we have the reverse. It’s a big problem.”

“If a person can earn $10 an hour more by getting on a plane and being on a jobsite [in Alberta] in a few hours…they’re going to go away.” —Gus Doyle

A rising cost of living exacerbates the problem, she notes. As housing costs continue to rise (a phenomenon hailed as beneficial by the real estate industry), what wage increases are achieved are eaten up by the increased housing and heating costs, nullifying any potential benefit.

“All that work around raising the minimum wage, and now we got housing where it is and all these people on low income, all their money is going to that.”

Gus Doyle, President of the Regional Council of the Carpenters’, Millwrights and Allied Workers, agrees.

“Lana is absolutely right. You cannot encourage people to stay in the province if you’re not paying wages where they can have a decent lifestyle, put their kids through university, have decent health care and retire with it. If a person can earn $10 an hour more by getting on a plane and being on a jobsite [in Alberta] in a few hours…they’re going to go away.”

Raising wages dangerous?

Business and industry leaders, however, are increasingly determined to draw a line in the sand when it comes to raising wages and benefits.

In 2008, during public consultations over the minimum wage increase the Canadian Restaurant and Foodservices Association (CRFA) presented a submission to the provincial government opposing an across-the-board increase. It argued the minimum wage increase would cost restaurant operators tens of thousands of dollars and drive independent establishments out of business. It proposed that servers in restaurants – and anybody who receives tips – be paid a lower minimum wage than all other employees, which they could make up for with their tips. Government rejected the proposal.

We asked the CFRA how it is that in a booming economy, with an above average rate of GDP going into corporate profits, it’s possible for restaurant operators not to be able to afford a minimum wage increase.

“Our challenge is that as a customer, you’re only willing to pay so much,” replied Luc Erjavec, Vice-President of CFRA Atlantic Canada. “When it’s too expensive, you’ll go elsewhere.”

He said that on average, food costs eat up 38% of a restaurant’s overall expenditures, while labour costs eat up 34%. He said that on average, restaurants in this province make a 4% profit.

“When you’re working with 3 or 4% profit, there’s not a lot of leeway. Customers are only willing to pay so much. They stay home. That is the reality of what we’re dealing with.”

“It’s your food and labour costs are your key drivers. Minimum wage has gone up. Food and basic foodstuff costs, energy costs are going through the roof. The operators really get stuck in the middle, because customers can always choose to stay home. They’ll get a carton of beer at the liquor store and buy a pizza at Sobeys.”

“We have some phenomenal entrepreneurs in Newfoundland and Labrador, showcasing local foods, alcohol, culture, and they should really be commended for what they do because they work very very hard for little money. They work hard for 4%.”

Responsible growth? Or double standard?

Richard Alexander, Executive Director of the Newfoundland and Labrador Employers’ Council, agrees. He says it’s inevitable that local employers will have to pay more, but he wants to control the rate of growth and slow it down.

“Wages are going up, they have gone up, they will continue to go up, and that’s a reality. As there are fewer people to fill jobs, it’s an economic law. The challenge is when you have wage inflation, it doesn’t take into effect the ability of the employer to pay. It’s not like the employer has the ability to increase wages arbitrarily, it has to come from somewhere. And it comes from the increase of goods and services to the public. Nobody wants to pay an extra 5 cents a coffee. It’s a problem that employers have to pay attention to, but it’s going to become more challenging to employers over the years. Businesses will close down, or will forego opportunities to grow.”

Payne argues in response that wage increases for average workers won’t have the sort of effect business leaders claim.

“They never say that when the rich get richer,” she observes. “It’s ok when the CEO’s and rich people get raises but when regular people get raises the world is supposed to fall in. When we try and share the wealth by having higher incomes for people and bring the bottom up, it’s described as a bad thing. But they don’t have a problem when salaries for business owners and CEOs go through the roof. I obviously take a different view on that.”

“Wages are going up, they have gone up, they will continue to go up, and that’s a reality. As there are fewer people to fill jobs, it’s an economic law.” —Richard Alexander

Payne argues that the view that low wages are necessary to attract business is an outdated one.

“I think ultimately what we’re entering, for our province, is a whole new era. Our five hundred year history was one where workers were competing with each other to get a job. We always had an oversupply of workers. That’s not going to be the case any more. We’re going to have some incredible contractions in the labour market. If we don’t do it right and if we aren’t mindful of the different measures that need to be brought in, then economic growth will not lift all boats. To assume that it will is not only shortsighted but always terribly terribly wrong.”

“You can’t pay Newfoundland and Labrador workers 20-30% less on a construction site than Alberta and expect they’ll stay here. They won’t…It’s a real sea change for a lot of employers, because for 500 years we had a large surplus of labour in our province. And now for the first time we don’t, and we never will again. And they [employers] don’t know what to do.”

No man province is an island

Tanya, an apprentice we spoke to about her experience looking for work, admits she had already pretty much decided upon graduation that this province didn’t offer the kinds of opportunities she was looking for.

“I pretty much assumed that I was going to move to Alberta…I’ve kind of resigned myself to the fact that the pay [in Newfoundland] is not what it is in Alberta. The [Alberta] pay is higher, you work a greater number of hours in a shorter period of time which allows you to progress. Most people up here [Alberta] would go home instantaneously if there was the same kind of job opportunities back there.”

Dr. Doug May, an economist at Memorial University who specializes in labour mobility, points out that it doesn’t work for a province to think it can make labour market decisions in isolation, without considering the impact that labour markets and labour standards in other jurisdictions might have on this province’s potential labour pool.

“A lot of what’s happening in the trades, you can’t just think of what’s happening in the province, but you’ve got to think about what’s happening across Canada. As things may pick up in Alberta, and there’s shortages, then they reach back into the Newfoundland labour market…You might find an employer saying I can’t get tradespoeple. What they mean is they can’t get tradespeople at the current going wage rates. The fact is they’re going off to Alberta where they’re paying much higher wages.”

“Those market forces are quite powerful. We can say the same thing about gasoline prices. We might say we want to keep the price of gas low, but there are market forces.”

Payne agrees with this assessment.

“Just because we have jobs available doesn’t mean Newfoundlanders are going to take those jobs. There’s going to be competition from other labour markets, people will still choose to commute to Alberta for work for a lot of reasons. For instance, the flexibility of work which our employers are not offering. If you’re working in another province, you often have 15 days on the job, and 15 days off. But if you’re living in Corner Brook and working in Long Harbour, you have no off time, all your time is travel or working. Is that a scenario somebody would want? Or would they just prefer to work in Alberta? Or if you want somebody from the Northern Peninsula to give up their seasonal job to uproot and come to St. John’s for a $10 an hour job, do you really think they’re going to do that?”

Finding a balance?

If, as labour leaders argue, the only way to maintain a sustainable labour supply is to increase wages, and if, as business leaders argue, independent operators can’t afford it, is there any middle ground? One option is for business operators to have other expenses reduced in order to free up money for wage increases. So the NLEC is also lobbying heavily for a reduction in the payroll tax. Alexander said he’s pleased that the provincial government has been reducing the payroll tax, and he says the government has committed to phasing it out over time, as financial circumstances permit. This, he says, will give employers more financial flexibility.

Even that, however, is not without controversy. Payne argues that recent reductions in payroll taxes have been undermining the province’s ability to offer core services, and once offshore resource revenues start to drop, the province will be in an unsustainable position.

“I think the challenge that we have now in our province is that we’ve had a considerable amount of tax reduction in the last four years. We’re cumulatively looking at over a billion dollars in tax reduction. It’s almost $400 million annually, so well over a billion dollars total. The government’s already done a lot of movement on taxation. They took the top income earners and they got a huge break in the 2010 budget. I didn’t agree with it – high income earners now have among the lowest marginal tax rate of any province…Maybe we should look at another tax bracket to capture really wealthy folks. I think that’d be a fair way to do it.”

“Maybe we should look at another tax bracket to capture really wealthy folks. I think that’d be a fair way to do it.” —Lana Payne

Payroll tax has indeed been dropping dramatically in the past decade. Prior to 2003, employers with payroll costs over half a million dollars had to pay the tax (in other words, larger employers, so as to avoid overburdening smaller independent business operators). In 2003, the tax was eliminated for businesses having payrolls worth $600,000 or less. As payroll tax is only charged on the amount of payroll which is above the threshold (which for calculation purposes remained $500,000), coupled with the additional tax breaks this considerably reduced the tax burden for employers. For instance, a large employer with a payroll worth $700,000 would only have to pay taxes on the $200,000 that was over the $500,000 threshold, which at the then-rate of 2% would cost them $4000.

Then, in 2008, the tax was eliminated for all employers with payrolls worth up to $1 million (and even those over $1 million received some reduction). As of 2011, employers with payrolls worth up to $1.2 million will be exempt from paying taxes on them (and also receive additional reductions). Although payroll tax does not comprise a dramatic amount of the provincial budget (overall corporate tax made up 7.5% of provincial revenue in 2010), what the numbers do show is that with decreases in personal taxes and payroll taxes (among other revenue sources), the province is increasingly reliant on offshore revenue to make up the difference. Indeed, the province’s reliance on offshore revenue has skyrocketed from 5.5% of provincial budget revenue in 2005, to 35.2% of provincial budget revenue last year.

Payne suggests the reason that the tax reduction strategy is often popular among the public is because their wages haven’t been keeping pace with inflation and economic growth. This creates a sense of pressure as disposable income is reduced. She said with proper, regular increases in wages, as well as the minimum wage, the pressure to reduce taxes would not be as great.

“There’s going to be a lot of activity happening in our province. The question becomes how do we manage some of that activity but also ensure the people that live here are benefiting from that economic growth. Part of how you ensure that and share the wealth is by having a fair taxation system. And make sure everybody pays their fair share.”

Government’s role

The provincial government says the issue of where this province stands in relation to the Canadian average when it comes to wages and benefits is not something they intend to become involved in. Outside of setting the minimum wage (which following two years of increases currently rests at $10 an hour, the third highest in the country) the government minister responsible for labour and employment says that’s an issue for unions and employers to work out between themselves.

“I guess to be blunt, government’s not in the business of setting wages for private sector,” said Human Resources, Labour and Employment Minister Darin King. “It’s a debate we stay out of, and they have to work it out.”

“Government’s not in the business of setting wages for private sector,” —Darin King

But in fact setting the minimum wage and working standards is not all government does. The provincial government also takes an active role in facilitating discussion between business and labour through its Strategic Partnership Council, in which representatives of business, labour and the provincial government review and discuss critical labour market issues.

“That’s an opportunity where we provide leadership,” says King. “It’s an opportunity for the partners to meet with our officials and provide insight. For instance, recently our department enacted a number of amendments to the Labour Relations Act. They were a result of the work done by the Strategic Partnership Council.”

Initiatives like the Strategic Partnership Council have received commendations from a number of quarters. Armine Yalnizyan, senior economist with the Canadian Centre for Policy Alternatives, noted in recent articles both in the Globe and Mail as well as the Progressive Economics Forum that although such initiatives are well established in European countries, this province is one of the first (and only) jurisdictions in North America to take such an ambitious approach to tackling labour market issues.

“Newfoundland and Labrador have standing tri-partite councils of business, government and labour,” she wrote in a recent article on the Progressive Economics Forum. “They are the only jurisdiction in Canada – perhaps North America – to address common problems in this ongoing way. These “Strategic Partnerships” deal with issues as diverse as labour markets, employment relations, innovation, population, and transportation and communications infrastructure. They provide a forum for timely intelligence-sharing, nip conflict in the bud where possible, and hasten the adoption of workable solutions.”

Nevertheless, the provincial government isn’t enthusiastic about the idea of intervening directly in the debate over provincial wage levels.

“The only thing we do is the minimum wage,” Minister King said. “We’ve increased that on a number of different occasions. As for the broader debate, it’s not one that we engage in because it’s not part of our mandate and our role. That’s for business and labour to work out between them.”

Other ways to impact the effect of wages

Labour leaders point out, however, that government can have a very direct impact on workers’ wages and benefits in this province without engaging in direct wage-setting for the private sector. The strength – and presence or absence – of provincial social programs such as childcare, for instance, can impact the ability of workers to achieve a financially viable lifestyle in the province.

“In addition to employment growth, we’ll also be having to replace people,” explains Payne. “We’ve had a lost generation of young people because of the cod moratorium. 50,000 Newfoundlanders moved out of here in the 1990s with their children. As a good society, you want to consider how parents can work and have families. Otherwise your birth rate goes down. It’s incredibly expensive to have children now, and people make decisions based on that. People make decisions based on the fact that it costs $20,000 a year for childcare. What have we done to our youth? We have student loan debt, and now we have expensive oil economy homes that cost a quarter of a million dollars. Now if you also have kids, it’ll cost you tens of thousands of dollars per kid. What do you think these young people are going to do? They’re not going to have kids. Or if they do, they’ll be sacrificing the work they could do in the labour market, where we need them. There are plenty of smart businesspeople who understand this – that we have to make decisions and provide options that will attract skilled, young workers to come here and to stay here. It’s incredibly important, I can’t stress it enough. “

For this reason, the Newfoundland and Labrador Federation of Labour has prioritized a campaign around expanding accessible public childcare.

No easy answers

While neither business, labour, nor government expect there to be easy answers to the question of what balance should be struck between the demands of business and the demands of workers, what is acknowledged is that as the labour shortage becomes more acute, these debates are going to become more pitched. Business lobby groups like the Employers’ Council urge government to ensure businesses see strong potential profits in it for them if they come to the province.

“The provincial government has the resources to improve the labour market, and to grow the pie in Newfoundland and Labrador,” said Alexander. “A lot of those initiatives benefit business and we support government in their efforts to do that…The reality is you can’t look at the arrangement you have with a company that comes in to do business and look at the corporate profit arrangement. There’s many other things that happen to attract a business to this province…there’s massive billions of dollars in investment to get these projects up and running. And these are footed by the companies. So if a company is going to be attracted to come to this province, then there has to be a return to them for the risk of investing corporate profits…Wages have gone up and will go up. But you don’t want it to happen overnight. The economy and markets and wages need to adjust over time.”

Labour, however, argues that the province is running out of time, and that businesses have to come to terms with the fact that in the province’s new labour market realities, traditionally low wages will no longer succeed in attracting the workers they need.

“Really smart employers have to realize that the money has to be there,” says Payne. “That mentality that we’re still a low wage economy, if you still believe in that then you’ve got serious problems. Your head is buried in the sand. There are going to be choices for people, and what we have to do as a province, is understand that all of us have a role to play here to make sure that our labour market is an attractive place to stay, that young people will want to come here and live here and have families here. There are some really important things you have to put in place to make that happen. The last thing we want to be is the flipside, importing workers who work here but live somewhere else. We need to have the workers live here and pay taxes here.”

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