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$6,000 revenue shortfall per annum for workers

August 30, 2013

2-minute read

We are told that wealth must first be created before it can be redistributed. Put like that, it sounds like a truism. We can still ask whether the wealth created is indeed redistributed in the end. That’s the question to which IRIS wanted to find an answer in its latest notice.

IRIS compared the evolution between 1981 and 2010 of labour productivity (according to the gross domestic product -GDP- per hour worked ratio) and the hourly compensation (wages and benefits) of workers in Québec. Whilst productivity increased by more than 30% during this period, workers’ pay only increased by 15%, i.e. only half the increase in productivity. In 2010 dollars, if the hourly compensation of workers had followed the productivity rate, it would have progressed on average from $22 to $29 between 1981 and 2010, whilst the average only went up to $26. For someone working 40 hours a week for 50 weeks, that gap is worth $6,000.

Because wage-earners’ pay has progressed more slowly than productivity, their share of the GDP decreased by 12% during the same period. Companies’ share in contrast has increased 16%. We have also seen revenue inequalities increase during the same period, as a study we published in 2010 illustrated.

The divergence across time between productivity and pay demonstrates that there is no automatic connection between the two. If an increase in productivity generates more resources to be shared within society, redistribution depends for the most part upon the negotiating power of the incumbent players.

Since 1981, workers’ negotiating power has gradually eroded, which explains in part the decrease in their share of the GDP. For instance, there were periods of high unemployment in the 80s and 90s. Furthermore, the Liberal government tightened the unemployment programme’s eligibility criteria in the 90s and the portion of unemployed receiving benefits plummeted from being the vast majority to only 50%.

These two elements combined might have contributed to restricting employees’ wage demands, because if they were to lose their job, they would not only have a hard time finding a new one, but they wouldn’t be receiving benefits in the meantime. The most recent reform undertaken by the conservative government as well as the provincial government’s welfare reform are certainly not helping, especially in the current globalization context in which offshoring threats are credible to a certain extent.

Rather than wear down workers’ capacity to get their fair share under the pretence of promoting a stronger economy, the government should instead refocus on bettering its citizens’ living conditions. Creating wealth before redistributing it, fine, but it must still be redistributed, and the different players each need to have the possibility to negotiate their fair share.

To this effect, policies promoting access to higher education and to quality education seem the best way to go. However, it’s not only up to governments to intervene. Given the ground lost over more than 30 years, it’s in the workers’s rights to themselves demand an important increase in their pay.

This article was written by Mathieu Dufour, research associate at IRIS—a Montreal-based progressive think tank. 

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