Union leaders frustrated with Bank of Canada’s advice to businesses not to adjust wages to inflation

Bank of Canada Governor Tiff Macklem speaks during a press conference in Ottawa on June 9.PATRICK DOYLE/The Canadian Press

A growing number of union leaders express their frustration at the Bank of Canada after Governor Tiff Macklem suggested last month that business leaders should refrain from factoring high inflation into wage negotiations, even as soaring consumer prices erode profits.

At an event hosted by the Canadian Federation of Independent Business in July, Macklem said businesses should not expect inflation to remain high. “Don’t build this into longer-term contracts. Do not include this in wage contracts. It will take time, but you can be sure that inflation will come down.

The comment prompted a backlash from union leaders, who are trying to keep their members’ wages in line with the first surge of inflation in a generation, and increasingly assertive in their bargaining activities.

“It was just extremely disappointing to see the Governor of the Bank of Canada tell businesses to basically stay the course on raising wages,” Unifor’s new leader Lana Payne said in an interview with The Globe and Mail. “We have an opportunity right now for workers to make gains. So it’s too bad that in the middle of all this you see Mr. Macklem come out and make these comments.

With consumer price inflation approaching a four-decade high, the Bank of Canada’s main concern is to get prices under control and bring inflation back to its 2% target. The inflation rate fell slightly last month and economists expect it to trend lower in the coming quarters. But the Bank of Canada is wary of a wage-price spiral: a situation where businesses and workers expect inflation to rise permanently, and thus push up prices and demand higher wages, respectively. in a self-sustaining cycle.

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“To end such a cycle, much higher interest rates are needed to bring inflation down, and the economy slows much more, leading to potentially widespread job losses,” the spokesperson wrote. of the Bank of Canada, Paul Badertscher, in an email.

“We agree that it is not the role of the Bank of Canada to advise companies on their business decisions. But it’s our role to provide Canadian businesses and households with the outlook for inflation,” he said.

Labor leaders and leftist economists say the central bank is putting too much emphasis on the risk of a wage-price spiral. This is a phenomenon that last occurred in the 1970s and early 1980s, when union density was much higher than it is today and contracts were more likely to be indexed to inflation. Moreover, by suggesting that companies should not build higher inflation into their wage contracts, the central bank is placing an excessive burden on employees to help reduce inflation, they argue.

Earlier this month, Bea Bruske, president of the Canadian Labor Congress, wrote a scathing op-ed chastising Mr Macklem for his comments on wage cuts. She said it was not the role of the Bank of Canada to “undermine the collective bargaining power of workers” and suggested that Mr. Macklem had been influenced by “Bay Street and the bank economists, who spent months raising the looming specter of a wage-price spiral.

The pace of wage growth is accelerating in Canada, although it remains well below the rate of consumer price inflation. The average hourly wage rose 5.2% year over year in July, while the consumer price index rose 7.6% that month, Statistics Canada announced on Tuesday.

Labor leaders see this as a major opportunity to make gains for their members and for the labor movement in general. The labor market is incredibly tight, with a record unemployment rate of 4.9% and vacancies far outstripping available workers. Meanwhile, soaring inflation puts cost-of-living concerns at the center of the national conversation.

Before the 2008 recession, it was more common for collective agreements to have COLA (cost-of-living adjustment) clauses, which indexed wage increases to inflation, according to Unifor’s Payne. “It’s something we need to start negotiating to get back to agreements. It’s an economic moment where you have two things coming together that can really help workers catch up.”

Peggy Nash, former NDP finance critic and MP, said it was also a “fortunate” moment to encourage non-unionized workers to think about the benefits of unionization – primarily, as a way to negotiate higher wages.

Canada’s unionization rate — a measure of unionized employees as a percentage of all employees — has increased only slightly over the past five years, according to Statistics Canada data. In 2017, for example, this percentage was 28.4, but it rose to 29% in 2021. But unionization in the private sector has dropped dramatically in recent decades.

“This is an important time for the labor movement to support unorganized workers and help them organize. This kind of opportunity hasn’t presented itself in a long time,” Nash, now a counselor at the Center for Labor Management Relations at Metropolitan University of Toronto, said in an interview.

Regarding Mr. Macklem’s comment on wage moderation, CFIB President and CEO Dan Kelly said the Governor was simply doing his job of explaining the Bank of Canada’s view on inflation. At the same time, Mr Kelly said suggesting companies refrain from raising wages was not practical advice in today’s ultra-tight labor market, where employers are vying for scarce workers.

“You could say, okay, in my restaurant, if I raise my wage rate by $2 an hour, that will lead to more inflationary pressures, so I should refrain from doing that,” he said. Mr. Kelly in an interview. “But you really have to be motivated to take one for the team to go down this path and see your business suffer.”

He said Mr. Macklem’s comment was most relevant to governments and large employers with unionized workforces, where the outcome of wage negotiations forms the basis for future negotiations.

As for small and medium-sized businesses, surveys of CFIB members suggest they intend to raise wages by 3.5 to 4 percent over the next few months, Kelly said. This is the highest reading on record, although still well below inflation.

“I don’t think employers, big or small, have the ability to raise wage rates to the point where inflation is hitting right now. But I also don’t think they’re going to hold the line right now and keep it at 1% or 2%, because otherwise they’ll have a cleanup of their current staff base to such an extent that it will make their businesses unsustainable.

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