Quebec Should Eliminate Replacement Worker Laws

We often discuss competitiveness in terms of the tax burden, manpower costs, or access to capital and other services. But one preoccupying issue in Canada remains that of labour regulations. This is particularly true for Quebec.

No American state or Canadian province is as heavily unionized as Quebec where as of 2005, 40.2 percent of workers belonged to unions. In the same year, the average unionization rate for Canadian provinces was 32.0 percent, and for US states was only 13.7 percent (Hirsch and Macpherson, 2006; and Statistics Canada, 2006).

Quebec’s labour legislation is, not surprisingly, quite favourable to unions. For instance, Quebec is one of five Canadian provinces where a union can be accredited without a secret ballot vote if the initial level of support exceeds a prescribed threshold (50 percent + 1 of the unit). Quebec employers have no right to challenge a union’s representation, which is not the case in most other provinces and in the United States.

Moreover, one of the most controversial aspects of the “Quebec model” is replacement worker legislation that has been in place since 1977, which prohibits the temporary hiring of replacement workers during legal strikes. In essence, and with minor exceptions, employers can replace striking workers only with management personnel working in strikebound firms who were hired before the start of negotiations. British Columbia is the only other jurisdiction in North America that has such restrictions in its labour relations laws. BC’s laws have been in place since 1993 and a similar law in Ontario lasted only from 1992 to 1995.

Prohibiting a company from hiring temporary staff to replace strikers – even though strikers are free to work elsewhere – is an example of the asymmetry in the rights and obligations of the parties in a labour conflict that strengthens unions in relation to employers in Quebec.

The effects of such legislation are, however, far from positive, whether for the workers they were intended to protect, or for the economy as a whole.

Economic effects

By modifying the balance of power between employers and unionized workers, replacement worker provisions lead to perverse economic effects. These vary according to whether the company involved is large or small. A multinational company hit by a strike can, for example, transfer production temporarily to another plant located elsewhere in the country or even abroad. These alternatives give it some counterweight to the economic pressure it faces because of the strike, although large companies may still be less likely to set up shop in a place where replacement worker laws are in force so as to avoid these labour relations problems in the first place.

The situation is more critical for smaller companies. They generally operate from only a single production facility, making it much more difficult for them to resist the economic pressure they face because of a strike. The result is that a smaller company will give in more easily to demands in order to avoid a strike it knows it cannot withstand. If a smaller company is nonetheless hit by a strike, it will tend to seek a quick settlement rather than a settlement that enables it to stay competitive and survive, and to maintain the jobs it has created.

Up against these unfavourable conditions, the logical reaction of a small business owner will be to manage his company in a way that reduces his dependence on unionized staff as much as possible. For example, a company could rely more on subcontracts, could hire fewer permanent workers, or could increase its production capacity by opening a new plant, often outside the province where it operates, rather than expanding the existing plant.

Each option results in reduced employment and investment. A recent study shows that in a given jurisdiction, the reduction in the employment rate linked exclusively to replacement worker measures is 0.47 percent (Budd, 2000). For Quebec, with a working-age population of 6.2 million, this is equivalent to a reduction of about 30,000 jobs. For BC, with a working-age population of 3.5 million, the reduction in the number of jobs is 15,800(1).

Another study shows that replacement worker measures also have adverse effects on investment levels. Using provincial data for 1967 to 1999, the study shows that the investment rate in provinces with such measures is 25 percent lower than in provinces without them (Budd and Wang, 2004).

The effects on strike duration and frequency

One of the most frequently-raised arguments in support of replacement worker laws is that they lead to shorter and less frequent labour conflicts. However, existing studies contradict this claim, at least for large companies for which data on collective agreements are readily available. For smaller firms, the argument may be valid, but few data are available to prove it.

The most recent of these studies examined 4,340 contracts negotiated at large private-sector companies in Canada from January 1967 to March 1993. The results, heavily influenced by Quebec’s experience, reveal that the average duration of a strike is 86 days if the hiring of replacement workers is forbidden and 54 days in the absence of such measures (Cramton et al., 1999).

The same study reveals that allowing replacement worker has generally had the effect of increasing the probability of a strike occurring – from 15 percent to 27 percent. Again, this contradicts commonly-held beliefs. These findings can be explained in part by the fact that unions, whose power is strengthened by such laws, are more often prepared to endure longer disputes in the hope of being compensated by higher wages.

Conclusion

None of these consequences works to the long-term advantage of workers as a whole, whether unionized or not. From a strictly economic standpoint, Quebec, and British Columbia as well, would benefit if they adapted their labour codes to be more in line with those in the rest of North America.

Note

1. The figures for Quebec and BC were calculated by applying the coefficient supplied by Budd, 2000 (0.47 percent) to the population aged 15 and over for each province.

References

• Budd, John W. (2000). “The Effect of Strike Replacement Legislation on Employment.” Labour Economics 7, 2 (March): 225-247.
• Budd, John W. and Yijiang Wang (2004). “Labor Policy and Investment: Evidence from Canada.” Industrial and Labor Relations 57, 3 (April): 386-401.
• Cramton, Peter, Morley Gunderson, and Joseph Tracy (1999). “Impacts of Strike Replacement Bans in Canada.” Labor Law Journal 50, 3 (September): 173-180.
• Hirsch, Barry T. and David A. Macpherson (2006). Union Membership and Coverage Database. Available at http://www.unionstats.com (accessed on April 3, 2006).
• Statistics Canada (2006). Labour Force Historical Review, 2005. CD-ROM. Ottawa: Statistics Canada.

Norma Kozhaya is an economist at the Montreal Economic Institute.