An Unwise Union: How Workers Will Suffer From Erin O’Toole’s Embrace of Big Labour

Matthew Lau
October 4, 2020
Erin O’Toole became leader of the Conservative Party of Canada on the strength of his Big Tent vision for the party. But how big should that tent be? Recently O’Toole surprised commentators by extolling the benefits of the union movement and repeating many of its claims as Conservative policy. Matthew Lau charts the origin of this unorthodox political strategy, and its worrisome economic implications. If the Conservatives want to attract workers’ votes, he argues, they should start by recognizing the damage done by unions to growth and job creation.

An Unwise Union: How Workers Will Suffer From Erin O’Toole’s Embrace of Big Labour

Matthew Lau
October 4, 2020
Erin O’Toole became leader of the Conservative Party of Canada on the strength of his Big Tent vision for the party. But how big should that tent be? Recently O’Toole surprised commentators by extolling the benefits of the union movement and repeating many of its claims as Conservative policy. Matthew Lau charts the origin of this unorthodox political strategy, and its worrisome economic implications. If the Conservatives want to attract workers’ votes, he argues, they should start by recognizing the damage done by unions to growth and job creation.
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The NDP has a new leader. And his name is Erin O’Toole.

Okay, maybe that’s a bit harsh. As the new leader of the Conservative Party of Canada, O’Toole has already put forward some obvious and welcome conservative policies, including reducing the CBC’s budget, flattening and simplifying the tax code, and putting a lid on unlimited government spending. Nevertheless, since his leadership victory in August, O’Toole has also revealed a few surprising NDP-like sensibilities.

In a carefully crafted Labour Day message, O’Toole blamed high unemployment in the manufacturing, energy, and forestry industries on “bad trade deals with the U.S. and countries like China” and “corporate and financial power brokers who care more about their shareholders than their employees.” He promised to introduce a Canada First economic strategy, tackle “big business” and reduce attention paid to GDP growth.

Throwing shade on corporations, free trade, and well-known economic indicators is not something most Canadians associate with conservative politics. In an interview with O’Toole, veteran TVO journalist Steve Paikin noted this was the first time he could recall a Conservative leader with a message that was “so unabashedly pro-worker, even pro-union. You say the goal of economic policy should be more than wealth creation, but about solidarity.” O’Toole didn’t disagree: “I want [union members] to see a place for unions and standing up for workers in the Conservative Party,” he told Paikin.

Erin O'Toole unabashedly embrased big labour in his labour day message to voters.
Steven Paikin questioned the “unabashedly pro-worker, even pro-union” sentiments of the message.
A Conservative leader with some surprising NDP-like sentiments: Erin O’Toole’s Labour Day message (above) criticized trade deals, big business and GDP growth while promoting worker ‘solidarity’; TVO interviewer Steve Paikin (below left) called it “unabashedly pro-worker, even pro-union.”

O’Toole’s surprising vision of building a workers’ paradise within the Conservative party has drawn swift comparisons to the work of American Compass, a group of self-professed conservative thinkers led by Oren Cass, once a key advisor to former Republican Presidential Candidate Mitt Romney. Since the organization’s inception earlier this year, American Compass has promoted a new style of American conservatism. In contrast with traditional economic conservatism, this rebranded version leans heavily towards greater unionization and a replacement of free trade and free markets with a national industrial policy characterized by a preference for domestic manufacturing, export promotion and skepticism towards financial markets.

As the leading advocate of this new brand of conservatism, Cass has called for collective-bargaining rights to be extended to nearly all workers. In a recent commentary he described labour unions as an institution capable of “generating widespread prosperity, limiting government intervention, preserving families and ways of life, revitalizing communities and fostering solidarity.” Conservatives, Cass argues, should thus make it a priority to embrace labour unions.

A template for O’Toole’s Canada First platform? Oren Cass, former policy advisor to Republican presidential candidate Mitt Romney, advocates unionization as a key conservative objective from his new think tank American Compass.

Beyond his short Labour Day video, O’Toole’s policy on unions remains rather ill-defined. It is impossible to determine whether he is ideologically aligning himself with Cass’ full-throated enthusiasm for all that unions stand for, or if this is simply a carefully-calibrated political maneuver meant to strip away blue collar, unionized voters from their traditional home in the NDP by appealing to practical, job-related concerns. Regardless of his motives, however, O’Toole is making a huge mistake if he thinks throwing his support behind the union movement will provide a net benefit to workers. As both economic theory and plenty of real-world evidence attests, workers – and the economy at large – would be better off without the tender embrace of unions.

Unions are often perceived to be a necessary bulwark against the power of large corporate employers; hence the origin of many industrial unions in the late 19th and early 20th centuries. But while unions can increase the bargaining power and wages of some workers, this is more than offset by a proportionately larger reduction in the bargaining power and wages of all those other, less fortunate workers who find themselves shut out of employment opportunities as a result of union activity. Moreover, while unions may increase their members’ wages over the short or medium run, the deleterious effect unionization has on productivity and capital investment over the long run inevitably leaves everyone worse off. And contrary to claims that the excesses of union power are a recent development, the role of labour unions in sabotaging the economic progress of disadvantaged workers has a long and well-documented history.

 

One of the earliest and pithiest examples of the harmful effects of unions can be found in the seminal economic text “Free to Choose” by Nobel Prize winning economist Milton Friedman and his wife Rose. The history of labour unions, the Friedmans wrote, can be traced back nearly 2,500 years to Cos, a Greek island that was experiencing a surfeit of physicians. “Competition for patients was fierce and, not surprisingly, a concerted movement apparently developed to do something about it – in modern terminology, to ‘rationalize’ the discipline in order to eliminate ‘unfair competition.’” By limiting entry into the profession, competition was stifled and wages suitably enhanced. Of course anyone on Cos needing the services of a physician was left worse off, as were those doctors shut out of the nascent medical union. As Milton Friedman stated elsewhere, “You know what unfair competition is. It’s anybody who charges less than you do.”

That was 2,500 years ago. But the basic economic principles at play haven’t changed since then. The role of labour unions has always been to benefit one group of workers at the expense of another, and to the detriment of all consumers. Today that means lobbying for government regulations that prevent the least-privileged job-seekers from competing for work by limiting entry through credentialism or other means.

Erin O'Toole's embrace of big labour seems to be overlooking the harm of unions to workers outside their sphere of influence.
Since their origin in the late 19th and early 20th centuries, unions have traditionally only helped those workers lucky enough to have jobs.

Campaigns for minimum wage hikes are a key way in which union policy limits competition and hurts non-unionized workers who may want to work at lower, more-competitive wages. The first minimum wage law in the United States was the Davis-Bacon Act of 1931, which was explicitly designed to prevent minority black workers from undercutting white labourers. William Green, the president of the American Federation of Labor at the time, complained that “colored labor is being sought to demoralize wage rates.” In response, the Davis-Bacon Act “virtually eliminated blacks from federally financed construction projects,” as prominent black economics professor Walter Williams recently observed.

Keep out! Minimum wage legislation, a popular Big Labour objective, was originally designed to prevent poor black workers from finding jobs in the United States in 1930s.

Decades of evidence from Canada, the United States, and around the world have shown that while the stated intentions of minimum wage laws may have changed, their effects have not. Unions continue to loudly support higher minimum wage laws, and the end result is that the most disadvantaged workers – including visible minorities, recent immigrants and young workers – are prevented from competing for jobs and moving up the economic ladder. Another group of workers to suffer from Ontario’s sharp minimum wage increase in 2018: intellectually disabled adults who found their entry into the jobs market cut-off completely.

Other examples of unions taking steps to prevent less-advantaged workers from “unfairly” competing for jobs abound. Taxi unions call for municipal bans on competitors Uber and Lyft; teachers’ unions relentlessly oppose families’ access to school choice to maintain a near monopoly on teaching jobs; unions of all kinds push for anti-scab legislation to prevent the employment of replacement workers when the union is on strike; occupational licensing is used to build walls around various industries; opposition to free trade deals provides an unfair advantage to domestic workers at the expense of less fortunate workers elsewhere. Even unionized librarians have actively prevented volunteers from helping out at public libraries in order to protect their own jobs. “The gains that strong unions win for their members are primarily at the expense of other workers,” as Milton and Rose Friedman correctly observed. So when unions and their supporters like Cass and O’Toole claim to be standing up for workers, it seems fair to ask: which workers?

“The gains that strong unions win for their members are primarily at the expense of other workers”: Nobel Prize winning economist Milton Friedman and his wife Rose understood the economic disadvantages caused by unions.

As for wages, companies are willing to pay more for labour if their workers are more productive. But unions do not increase the productivity of labour. Since unions contracts make seniority rather than productivity the relevant factor for determining compensation, and because unionization increases the job security of unproductive workers, there is little or no incentive for unionized workers to improve their productivity. This is an economic reality that flies in the face of the statements from union leaders that unions protect workers by winning gains for them at the expense of – to borrow O’Toole’s language – big corporations that care more about profits and shareholders than workers.

The problem with redistributing potential profits from shareholders to workers through inflated labour costs is that it’s only with the expectation of profits that businesses exist in the first place. Without profits there would be no business investment or hiring. Simply put, profits drive the demand for workers, and with lower profits there will be less capital investment and fewer productive jobs. Unions might be able to help workers by redistributing business profits in the short run, but the inevitable withdrawal of capital this causes will leave even unionized workers worse off in the long run.

Before fully embracing unions, Erin O'Toole should look at the actions of unions to reduce competition and prevent fill-in workers during strikes.
Should Erin O'Toole embrace organizations that seek to control and distort market forces at the expense of wrokers?
Working hard to reduce competition: Union policies stifle the provision of new services such as Uber (above) and limit the ability of replacement workers to fill-in during strikes (below).

Sometimes, the long run isn’t even that long. In February, the Ontario Labour Relations Board ruled couriers with the food delivery service Foodora could unionize; within two months the company declared it couldn’t compete and closed its Canadian operations. While the firm denied the union drive was behind the decision, it is difficult not to draw the connection, especially since the food delivery business has lately been booming..”

Academic studies have also shown that labour laws that make unions more powerful often have harmful effects on the fate of unionized workers themselves. In 2010 the C.D. Howe Institute reported bans on replacement workers during strikes – a policy enthusiastically supported by unions − have the long-run effect of making even unionized workers worse off by “reducing investment, wages and employment.” A 2014 study in the journal Industrial Relations also found that bans had a negative impact on all workers’ wages. According to the researchers, powerful unions and the threat of disruptive work stoppages discourage business investment and thus reduce the productivity of workers and their wages over the long run.

Sometimes the long run arrives earlier than expected: Food courier business Foodora ceased operations in Canada two months after a unionization bid by its employees.

Meanwhile, research has found that right-to-work laws in the United States – which reduce the power of unions – not only improve employment and wages, but also raise “current and future expected life satisfaction and economic optimism.” Plus, “these gains are concentrated among union workers.” Powerful unions discourage workers from being more productive and reduce the incentive for workers to invest in their own human capital by improving their skills or getting more education or training. By contrast, non-unionized jobs “offer more opportunity for career advancement and human capital accumulation” and non-unionized workers “report higher levels of engagement and corporate culture.

 

Erin O'Toole would benefit workers more by encouraging new business investment and opportunities instead of enabling big labour by embrace and acceptance.
If O’Toole wants to improve opportunities for all workers, he should pay less attention to anti-competitive union demands and focus more on getting the economy back on track by encouraging new business investment.

Higher costs, lower productivity, and greater economic disruption are central to the union agenda. Their purpose is to maximize the labour cost for any given level of production, a notion that is clearly inimical to robust economic growth. This goal of pushing labour costs ever-higher runs through the entire industrial policy agenda as advocated by Cass’ American Compass, and to which O’Toole appears to subscribe with his Canada First mantra. Demands for greater government intervention to artificially support domestic manufacturing employment, and complaints from O’Toole about the effects of trade with China all point in one direction: continual increases in labour costs due, not to productivity gains, but as a result of government and union interference in the market. And in doing so, these policies actually impoverish all workers by reducing their purchasing power as consumers. Furthermore, while romanticizing domestic manufacturing and exports, Cass and O’Toole seem to view other industries, most notably financial markets, with skepticism verging on contempt. In this way they overlook the crucial role of financial markets in determining asset values and directing capital towards its most productive uses. All of which are essential to improving labour productivity and raising wages.

If O’Toole wants to court the votes of blue collar workers skeptical of the NDP’s vision of turning Canada into a green socialist utopia, he should start by recognizing that unions are actually a barrier to better outcomes for all workers. Instead of encouraging greater unionization, the best way to help workers is to get rid of the regulations and other barriers that discourage business investment and productivity gains, so that the Canadian economy can get back on track as quickly as possible.

Matthew Lau is a Toronto writer specializing in economic issues.

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