“The inflation hangover”: What is behind all the recent labor disputes? – National

While trains are rolling again on Canada's rails, airlines fear that another industrial dispute among Air Canada pilots could break out in a few weeks, leading to flight bans across the country.

It was not only in Canada that there were strikes in the summer: in recent years, a wave of industrial action has affected the ports in British Columbia, government buildings in Ottawa and hospitals in Quebec.

Whether on the tarmac, behind desks or in classrooms, Canadians are taking to the picket lines as negotiations between unions and employers appear to be increasingly failing.

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Experts who spoke to Global News said that despite signs of a slowdown in the cost of living increase, inflation was still to blame as workers experienced a loss of purchasing power and therefore pushed for higher wages.

“This is the hangover from inflation,” says David Macdonald, senior economist at the Canadian Centre for Policy Alternatives. “Workers are trying to recover from this huge increase in prices.”

Inflation soared during the recovery from the COVID-19 pandemic, peaking at 8.1 percent in June 2022, as Canadians flocked abroad to spend after travel restrictions were lifted and semiconductor shortages pushed up prices of goods such as new cars.

According to Statistics Canada, median after-tax household income fell 3.4 per cent to just over $70,000 in 2022 as decades of high inflation coincided with a pandemic-related decline in government support.

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Although inflation has eased recently, most recently at 2.5 percent in July, wage gains tend to lag behind inflation. Over the past 18 months, average annual wage increases have exceeded annual inflation as the Bank of Canada's benchmark interest rate has been raised to mitigate price pressures.

Some of these wage increases were achieved through individual negotiations or job changes, while many union members were locked out or forced to refuse work in order to make progress at the bargaining table.

History has shown that in Canada, during periods of higher inflation, both the number of working hours lost due to work stoppages and the federal funds rate tend to rise.

According to Macdonald, wages in the private sector usually respond more quickly. In a union, however, collective agreements are renegotiated every few years, which creates a greater lag.

“Conflicts are often necessary to achieve these higher wages,” he says. “We see this in several sectors.”

According to Macdonald, industries at risk of disruption include transportation and warehousing – sectors that included the recent rail shutdown and the strike at British Columbia ports last summer – as well as public administration, health care and education.

Moshe Lander, an economist at Concordia University, says the higher inflation rises, the more difficult it may be for employers and employees to improve their situation.

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If inflation is two percent in a given year, an employee might ask for a three percent raise while management tries to keep costs down with a one percent pay increase. In both cases, the offers are about 50 percent above or below the inflation rate.

However, if inflation is closer to eight percent, Lander explains, inflation on either side could typically rise to 12 percent or fall to four percent.

“This leaves much more room for negotiations. But it also means that there is much more room for negotiations to fail,” he says.

Canada has had many years of relatively low inflation, so it is no surprise that major job disruptions have been rare during this period, argues Lander.

However, as inflation reaches levels not seen since the 1980s, the labor movement's response will also be more pronounced, he says.

Macdonald also argues that unions in Canada have less power today than they did in the 1970s and 1980s, which has led to them exercising more power in the form of industrial action.

Certain contract changes that would have provided for an automatic wage increase in line with the consumer price index are less common in today's agreements, notes Macdonald. This would make the wage adjustments at the end of the contract even greater.

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“Because there is no automatic link, much higher pay increases are required,” he says. “And these are often difficult for employers to absorb, even if they have done really well in recent years in terms of increasing their corporate profits.”

Lander points out that the problem is not inflation or stagnant wages, but that productivity is at the heart of the concern.

Productivity improvements allow Canadian workers to do more work for the same number of hours, which generates higher revenues for employers and makes it easier for companies to raise wages without too much impact on the bottom line.

Unfortunately, productivity in Canada has been stagnant or even declining recently. Lander says the conditions that have led to strikes in recent years will become all too common if the productivity problem cannot be solved.

“The consequence for Canadians: If we do not find a way to increase our productivity, our purchasing power will naturally and permanently decline in the future,” he says.

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