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Sean Speer: Watch out for the growing fault line between public and private workers

Commentary

Much Canadian analysis and commentary tends to focus on the fault lines in our society. It seems inherent to the cobbled together nature of the Confederation project that we concern ourselves with these potential fissures and how they may manifest themselves in our economy, culture, and politics.

The historic divide between English and French (the “two solitudes” as it was famously called) is certainly the best known and most closely studied in Canada’s history. Recently there’s been growing interest in the urban-rural divide and its broader political economy implications. Progressives similarly tend to focus on issues of class or race or gender and the potential for systemic discrimination.

This hyper-focus on potential fissures in Canadian society derives from legitimate concerns about basic political stability. It’s a sort of prudential hedge that aims to ensure that no particular fault lines grow so large that our sense of fairness is offended or Canada’s social cohesion is threatened.

COVID-19 has shone a light on an underexplored fault line within the country: the growing government bureaucracy and those who must pay for it.

This divide is illustrated by Statistics Canada’s latest jobs report. The private sector, including those who are self-employed, has shed 520,400 net jobs since the start of the COVID-19 pandemic, while the number of public sector jobs across the country has increased by 180,000.

Although some of these public sector jobs may be a temporary spike in response to COVID-19, it’s worth recognizing that more than 50,000 are classified as “public administration.” This means that a significant share of these new hires isn’t necessarily on the front lines of the pandemic response, including, for instance, vaccine distribution.

This expansion of the government’s payroll (particularly for non-COVID related work) in the middle of the pandemic seems to fail a basic fairness test. There’s something inherently unfair to add to the long-term tax burden of businesses and households that have already been saddled with government-mandated shutdowns, pay cuts, and job losses.

It risks exacerbating the nascent divide between what Globe and Mail columnist John Ibbitson has described as “the public class, who live on the avails of taxation, and the private class, who pay the taxes.”

As he explains:

“The public class includes the school teacher, transit worker, public servant, nurse, student, artist, social worker, first responder, city worker and the like. Most of them would welcome a further expansion of the state, which would benefit their class.

The private class includes the store clerk, store owner, accountant, factory worker, office manager, salesperson, truck driver, marketer, oil worker and others trying to hang on to their job and as much of their money as possible.”

These types of formulations can risk succumbing to oversimplification. Public sector workers do of course pay taxes too and millions of private sector workers benefit from various public programs such as the Canada Child Benefit, Canada Workers Benefit, and so forth. The dividing line between so-called “makers” and “takers” may not be as clear as it’s sometimes characterized.

But as a basis for understanding Canada’s modern political economy, Ibbitson’s formulation has merit — particularly as the nature of private sector employment evolves from the traditional industrial model to less secure forms of service-based work. These secular trends suggest that the work experiences of public and private sector workers in Canada are bound to continue growing further apart.

This divide was already notable prior to the pandemic. Take one example: After falling by 7.6 percent between 2011 and 2015, the number of federal public servants increased by 16 percent between 2016 and 2020 (see figure). Private sector employment (including self-employed workers), by contrast, grew by just 1.9 percent over the same period.

It’s not just differences in hiring rates either. Research by the Fraser Institute (and others) consistently finds a wage premium for public sector workers in Canada. Even after controlling for factors like gender, age, marital status and education level, Fraser Institute scholars estimated a 9.4 percent wage premium, on average, for public sector workers over their private sector counterparts in 2018. Adjusting for the relative levels of unionization still produces a wage differential of about 6 percent.

Yet this doesn’t even tell the full story. The overall compensation gap is far greater when one accounts for non-wage benefits such as pension and health benefits, job security, and typical retirement age. Just consider, for instance, that 87.7 percent of public sector workers are covered by registered pension plans, compared to just 22.5 percent of private sector workers.

This kind of growing divide in the work experiences of public and private sector employees in Canada is something that policymakers ought to be more cognizant of. It’s the sort of thing that will become even deeper in the future as government spending becomes more unsustainable and the private economy is further held back by labour shortages. We could end up with a two-tier economy: one in which public sector workers earn more, have better benefits and are granted greater job security and another in which private sector workers face more precarious work with fewer benefits and less security.

Under such a scenario, one can envision the makings of a future breaking point: a moment in which the Ibbitson’s private class (which is still represents two-thirds of overall employment) starts to assume a shared identity and in turn supports a political agenda that targets its real and perceived inequities relative to the public class.

That would be an unhealthy political future. It could contribute to a climate of “class warfare” and reinforce a zero-sum politics among different types of Canadian workers. The fault line would run through households, families, and communities. It’s a future that we should seek to avoid.

A better future is one in which the divide between public and private sector workers is narrowed over time through a combination of sensible public restraint and a more productive private economy. This is a key point: progress will require action on both sides of the public and private equation.

Governments will need to limit the growth of total public sector compensation — including wage and non-wage aspects. If public sector workers prefer more non-wage benefits, that should be reflected in slower wage growth. If they prefer high wages, that should involve adjustments to non-wage benefits. The key point though is that there must be an overall goal to minimize the total compensation gap between public and private sector workers.

As for private sector workers, the focus must be on enhancing labour productivity. That’s the best way to raise wages and living standards and the evidence tells us there’s certainly room for improvement here.

As others have highlighted, Canada’s productivity performance over the past 50 years has lagged its peer jurisdictions. Consider, for instance, that in 1970, Canada’s GDP per person employed was $11,678, which was only $1,276 less than in the United States and $1,830 more than the G-7 average. But fast forward to 2019 and Canada’s GDP per person employed was $34,631 less than in the United States and $12,971 less than the G-7 average (see Figure).

Boosting productivity through investments in innovation and technology must therefore be a top priority for policymakers in the post-pandemic era. It will not only contribute to stronger wage growth for private sector workers, but it will also help the economy to cope with demographic-induced labour shortages, which as the pandemic subsides, will invariably act as a brake on long-term growth.

The upshot: Canadian policymakers need to concern themselves with the growing fault line between public and private sector workers. A renewed commitment to sensible public spending restraint and higher rates of productivity in the private economy can help reshape the policy discussion from one of zero-sum scarcity to one of positive-sum abundance.

That’s the best path to stability, cohesion, and higher living standards for all Canadians.

Janet Bufton: Dismantle the institutions that make collective aspiration seem necessary

Commentary

The Hub launched with a core mission of getting Canadians thinking about the future. We’ve been stuck in the doldrums, pessimistic and polarized, for too long. To lay out a roadmap for the next 30 years of Canadian life, we asked our contributors to pinpoint the most consequential issue, idea or technology for the country in 2050. This series of essays by leading thinkers will illuminate Canada’s next frontier.

On June 24, 2021, I woke up to the news of 751 more unmarked graves at the former Marieval Indian Residential School in Saskatchewan. This came on the heels of the discovery of 104 graves in Brandon and a mass grave for 215 children, some as young as three years old, in Kamloops. Shortly afterwards, 182 and 160 unmarked graves were identified near Cranbrook and on Kupar Island in British Columbia. Five sites down, with what could be over 1,400 dead children. Over 130 residential school sites are still to be properly searched. 

The Truth and Reconciliation Commission of Canada Final Report upon Canada’s Residential Schools: Missing Children and Unmarked Burials estimate of 3,200 children killed by the Residential “School” System is looking awfully, absurdly, rosy. 

You’ll forgive me, I hope, if I don’t see Canada’s next frontier as one that will be shaped by a big, shared idea — especially one implemented by the Canadian government — or if I don’t think that trying to identify a single shared direction for the country is something we ought to aspire at all. 

This is — emphatically — not a call for a specific response to the horrors of the Residential School System or any of the other failures of the Canadian government identified in the findings of the Truth and Reconciliation Commission. The last thing Indigenous peoples need is another person from outside of their communities talking about what they need. Indigenous peoples have told us what they need, and it’s substantive action, not white saviours.  

But that’s still not enough. Non-Indigenous Canadians have a responsibility to understand how on Earth we ended up with a history that threw kidnapped toddlers in the ground. When we say never again, we should mean it. That statement should have teeth. 

Against collective aspiration

I agree with the introductory essay of this series that Canada is being held back by the lack of “collective aspiration.”  A suffocating administrative state is what holds back substantial change with its insistence on approving any direction we might take. I fervently hope that if Canadians ever again go in one direction, it doesn’t lead to more rows of tiny shoes.

Instead, we should dismantle the institutions that make collective aspiration seem necessary and replace them with respect for all individuals and communities. 

Against this vision stand those who worry about what ordinary people, left to their own devices, might do. Canadians have lost faith in each other, but expect that if our aspirations are collective then our goals can be made better than they are individually. 

This isn’t totally incoherent. Canadians don’t expect grand visions to be implemented by our neighbours. We expect the government to put experts in charge of choosing and implementing the right collective goals. 

The sneering dismissal of the idea that ordinary Canadians — let alone those most disenfranchised — could be fit to make important decisions is on full display every time a Conservative despairs that a drama teacher could be prime minister of Canada and every time a Liberal indignantly remarks that the premier of Ontario doesn’t hold a post-secondary degree. Sneering is mild, though, compared to what happens when experts decide, as Canadian governments did in the late 19th and in the 20th century, that the choices of entire peoples and cultures aren’t good enough. 

Expertise is simply no substitute for choosing appropriate goals. The authors of the Gradual Civilization Act of 1857 were our best and brightest. They had big ideas to move the country forward. Duncan Campbell Scott was well-educated with years of relevant experience. He applied both to the goal of eliminating the language, culture, and religions of Indigenous peoples. This is all, undeniably, part of our history, and a dream of unity is part of the reason why.

The problem with collective aspirations, especially when chosen and implemented by privileged experts, is that they will always be chosen by people with power on behalf of those who lack it. Freedom has to apply to everyone, not just the most privileged and credentialed. Freedom for a few isn’t freedom. It’s power, plain and simple. Equality under the law is indispensable if we are going to let people forge their own paths.

What’s the alternative?

People most comfortable with the status quo will be uncomfortable with loosening the reins on people and communities who want things to change. But individuals have a better track record than you think, especially when they’re appropriately and equally constrained by rules and institutions. When people are free, they can accomplish — they have accomplished! — an awful lot. 

Elinor Ostrom, winner of the 2009 Nobel Prize in economics, studied how communities solved environmental and resource management problems that experts had decided couldn’t be solved. Unlike European settlers who were too myopic to recognize anything but wilderness when they saw Indigenous polyculture farming, Ostrom approached the communities she studied with respect and curiosity that helped her understand solutions that experts thought shouldn’t exist. 

Ostrom helped us understand what makes community rules strong and effective and what makes them fragile or dysfunctional. One type of fragility comes from a higher level of government imposing solutions divorced from the people to which they apply and the things that those people know. Such “solutions” can even create or entrench problems.

Without laws founded in the equality, freedom, and worth of all people and their communities, we’re bound to blind ourselves to the potential, the knowledge, and the solutions of others.

Collective humility, individual boldness

Colonial governance is only one possible avenue that collective arrogance can take. It’s the one most relevant to Canada’s history, and its legacy is shameful.

It’s scary, especially for those who became politically powerful through the status quo, to think about what could happen if people in Canada were allowed to live without oversight and approval. But we should be bold enough, individually, to be collectively humble. 

Whether the decision is to allow opening a new sort of business, building a different sort of building, or practicing self-governance, Canadians need to take seriously the costs to people and communities different from us of imagining that we share our most important goals and aspirations. If you’re very fortunate, ignoring these costs might feel like the “doldrums of decadence.” But for others this selfish dream has resulted in generations of trauma that sits with Indigenous peoples to this day.

To see Canada’s next frontier, we must sweep aside all these imposing plans that have left the Canadian majority feeling they’re in the “doldrums of decadence” while leaving marginalized people dealing with generations of bigotry, racism, and trauma. 

Indigenous people deserve action, not words, from a government that takes full responsibility, pays reparations, and grants sovereignty. But Canadians should go further and take the teeth out of the very systems that allowed Canadians to think that they ever could or should impose one right way forward.