Income level of federal workers: why should planners care?

Over breakfast yesterday (27th April) I was listening to morning radio shows, alternating between Radio-Canada and CBC, as I usually do. Both had items and interviews about the federal employee strike.

The strikers’ basic demands revolve around two things:

  • working from home (I will not further discuss this here);
  • ensuring the restrospective wage increase (which covers 2021 and 2022, I believe) compensates for high inflation of 2021 and 2022, i.e. the employees do not want their real incomes to decrease.

The overwhelming impression that came across the morning shows was that the federal government should limit wage increases to well below inflation: otherwise, employees in other industries may also have the temerity to ask for wage increases that compensate them for inflation.

This impression was not articulated by the radio-hosts, but by interviewees, by some commentators, and by the summaries of ministerial pronouncements.

False assumption : inflation is not being driven by wages

Underlying these interviews and commentaries is the assumption that current inflation is driven by wage increases.

This assumption is false. There is no evidence that wages are driving inflation: quite the contrary – costs have risen, and employees are struggling to maintain their living standards.

The question of whether federal employees are paid fairly is red herring that is often raised: the issue at stake is not absolute pay levels – it is whether inflation should be the pretext to reduce real incomes. This question is relevant to anyone who relies on a salary for a living.

Corporate profits are (partly) driving current inflation

Although inflation is a complex phenomenon, it is currently more plausible to argue that corporate profits and income increases for the super-rich are factors behind inflation.

Of course, corporate profits and increases in very high incomes are not inflation’s only drivers: supply bottlenecks, natural disasters, the war in Ukraine and labour shortages are also drivers of inflation, if only because they restrict supply, thereby pushing up prices.

Still, what strikes me is how much negative commentary there is about wage demands, about employees trying to maintain their standard of living.

Corporate profits, though remarked upon, do not attract much ire on morning talk shows! Wage increases are seen as a drag on the economy, says the Bank of Canada, whereas profit increases are often seen as a good sign.

This smacks of double standards, especially when the government is called upon to limit wage increases but stands aside when profits skyrocket.

Long-term shift of GDP away from employees towards profits

This double standard has been long in the making.

Since the early 1970s there has been a persistent shift of GDP – i.e. of the value created by the economy – away from wages and towards corporate profits (see Figure 1).

This is well documented, both by Piketty in his book ‘Capital in the 21st century’, and also by multiple reports, both academic, such as “What explains the Rising Profit Share in Canada?” and from consulting firms, such as McKinsey (A new look at the declining labor share of income in the United States”).

It is not only hardcore socialists who recognize this trend!

Figure 1: Labour and capital shares of GDP, from Sharpe et al (2020), What explains the rising profit share in Canada?
Why should urban planners care?

There is concern amongst urban planners that inequality is growing, and that this has an impact on cities in a multitude of ways.

Likewise, the financialisation of housing is decried, as a basic capability (i.e. decent housing) is increasingly treated as an asset, subject to the whims of portfolio managers or wealthy individuals.

Even though it is easy to portray federal workers as a rather privileged group – they are not the lowest paid by a long shot! – they are fighting for something that has an impact on us all, viz. maintaining (not increasing) real income levels and, by extension, attempting to maintain the share of GDP that goes to employees (as opposed to corporate profit).

Is it unreasonable to maintain real incomes?

Ensuring that incomes keep up with inflation should be a basic and uncontroversial demand. However the media – at least the interviews I heard over breakfast – suggest this is unreasonable.

I disagree. What is unreasonable is to think that profit-driven inflation can somehow be resolved by pushing wages down. The only effect of pushing wages down is to further increase the share of GDP that goes to corporate profits.

Of course, federal employees are not in the private sector: however, they are an example to other employers and employees. Their pay and conditions set the tone for the rest of the economy.

Indirectly, therefore, the strike is about whether the continued erosion of earned incomes is acceptable in Canada.

For planners – particularly those concerned about inequality and its effect upon cities – this is an important question.

Published by Richard Shearmur

I am a professor at McGill's School of Urban Planning. I perform research on innovation, on how we locate work activities (in a world where people often work from many places), and on urban and regional economic geography. I used to work in real-estate, and teach a course on this. I am an urban planner, member of the Ordre des Urbanistes du Québec and of the Canadian institute of Planners.

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