Wage and Benefit Trends in the Public Sector after the Common Sense Revolution. John O Grady

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1 Wage and Benefit Trends in the Public Sector after the Common Sense Revolution John O Grady Bargaining in the Broader Public Sector University of Toronto, Centre for Industrial Relations and Lancaster House Publishing Spring Conference 2000 Toronto June 9, 2000 Since the election of the Conservative government in 1995, the landscape of collective bargaining in Ontario s public sector has changed fundamentally. What I want to do this morning is briefly describe that changed landscape and offer some thoughts as to where I believe public sector labour relations are heading in the next few years. When the Conservative party was elected in 1995, the centrepiece of its platform was to balance the provincial budget within five years and to cut personal income tax rates by 30%. What is sometimes not well understood is that the government essentially relied on the economic recovery to solve the deficit problem. Just as the deficit was almost entirely a cyclical phenomenon, so also the elimination of the deficit was also a result of a reversal in the economic cycle. Indeed, for each and every year of the past five years, revenues have run significantly ahead of budget projections. While economic recovery would address the deficit problem, financing the 30% cut in personal income tax rates required radical changes across the public sector. The need to finance deep cuts in the personal income tax rates 1

2 explains virtually all of the specific measures that the government undertook in the past five years. The need to finance those tax cuts was the government s compass. The ensuing changes represented one of, if not the most, radical re-alignment of public policy of any provincial or state government in North America. I want to highlight what I believe were the most important steps taken by the government to finance the personal income tax cuts and which have so significantly changed the landscape of public sector labour relations. When the Conservative party was elected in 1995, public sector labour relations in this province were still governed by the Social Contract. For the most part, the restraints on wages and benefits in the Social Contract were scheduled to end in the first six months of Most collective agreements came out from under the Social Contract in March of The critical question was what would happen when the Social Contract came to an end? Keep in mind that wages and benefits account for roughly seventy percent of spending in the broader public sector. Controlling wage and benefit costs is therefore the key to managing overall expenditures in the broader public sector. The government s strategy had three elements. The first addressed the problem of arbitrated wage settlements. One of the government s first legislative initiatives was Bill 26, introduced in November of The bill was short-titled the Savings and Restructuring Act. It is better known as the Omnibus Bill. Schedule Q of the Omnibus Bill amended all of the legislation in Ontario which provided for arbitration of labour agreements. Schedule Q gave explicit statutory direction to arbitrators to take account of: the employer s ability to pay in light of its fiscal situation. 2

3 And in case the intent of that phrasing wasn t sufficiently clear, Schedule Q went on to tell arbitrators to take account of: the extent to which services may have to be reduced, in light of the decision or award, if current funding and taxation levels are not increased. In other words, arbitrators were told to carry the can for any tax increases. Schedule Q seeks to inaugurate in Ontario a new arbitration regime. It is to be a regime that is substantially more sympathetic - or, more frankly, biased - to the interests of public sector employers. The second element in the government s strategy for the public sector was the radical redrawing of the division of responsibilities between the provincial government and local governments. The key features of this redrawing were four-fold: First, the province took direct control of total spending in public education, Second, the province forced amalgamations of school boards and municipalities. Under a different initiative, amalgamations also took place in the hospital sector. Third, the link between property taxes and municipal services was sharpened, and Fourth, for large municipalities that were not part of the Conservative s majority in the Legislature, there was a significant, net shift in costs to the municipal level. 3

4 What have been the effects of these change? First, the province is now for all practical purposes the direct employer of teachers. Its attempt to micro-manage this employment relationship through legislation will inevitably lead to more conflict. Second, at the municipal level, wage settlements have been noticeably constrained by the tighter link between public sector labour relations and the property tax, or, in the case of public transit, the ticket fare. The new Common Sense Revolution counter poses public sector wages and benefits at the municipal level against what are arguably the most unpopular forms of taxation. The third element in the government s containment strategy was the bluntest namely direct cuts in programme support. This meant that bargaining throughout the public sector took place against a backdrop of lay-offs and contracting out. When all of this is pulled together, what have been the consequences for public sector labour relations? First, the government succeeded in extending the gap between public sector and private sector wage increases that emerged under the NDP s Social Contract. As you can see from the graph which was handed out the gap narrowed somewhat in 1998 and 1999 but has again widened. Since the emergence of public sector collective bargaining in the 1960 s, we have never seen such a prolonged period of settlement gap. It is unlikely that this gap can be sustained in the long run. 4

5 Second, those public sector unions that are perceived as being unable to deal with and redress the new bargaining realities will either adopt a more aggressive approach to bargaining or be discarded by their members. There is, in my view, a direct relationship between the perceived inability of the Service Employees International Union to deal with the new economic realities and the movement on the part of many of its members to replace the SEIU with Canadian Auto Workers. Everywhere in the public sector, the question will be the same: will the CAW deliver where SEIU failed? Keep in mind that the bargaining units we are talking about are chiefly units governed by compulsory arbitration and Schedule Q. You do not need a crystal ball to predict the impact of such a radical change in unions, accompanied by expectations of significant change and in a sector that has all the brittleness that you would expect from both compulsory arbitration and Schedule Q. This is not a recipe for stability. Third, the government will continue to rely on legislative devices to address what it perceives as obstacles in public sector labour relations. These obstacles may be teachers participation in extra-curricular activities, negotiated restrictions on contracting out elsewhere in the public sector or the arbitration system. Public sector labour relations will be politicized to an unprecedented degree. Fourth: Somewhere in the public sector a defining conflict will take place. By a defining conflict I mean one which crystallizes fundamentally opposed views about workers rights and the role of unions and sets a benchmark for defining how the interests of employees and management are balanced. Ontario s defining 5

6 conflict may be with nurses, as it was in Newfoundland, Alberta and Quebec. It may be with support staff bargaining units in hospitals. It may be in the public education sector. Or it may be in the nursing home sector, when the shift to the CAW is completed. Where the defining conflict will occur cannot be predicted. But the likelihood of such a defining conflict must be judged extremely high. The outcome of that conflict will shape public sector labour relations for some considerable time to come. 7.0% 6.0% "Social Contract" Harris Elected 5.0% 4.0% Private Sector 3.0% 2.0% 1.0% 0.0% Public Sector -1.0% Source: Ontario Wage Devleopments (Ontario Ministry of Labour) : Fourth Quarter Reports 2000: First Quarter Report 6