Are you voting for policies that hurt you? Neoliberal polices and your paycheque

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Another federal election is coming, and the promises are gearing up. But after the election is over and politicians start implementing those promises, do they really work out the way we had hoped? 

We are particularly vexed about one promise that has been tossed around for a long time. Remember "the rising tide that lifts all boats?" Supposedly, politicians would implement policies to boost productivity growth and we were told that this growing economic pie would "trickle down" to our paycheques.

Based on this argument that policies to boost productivity would translate into real wage growth, Canadian governments have pursued the standard pro-business productivity agenda: lower business taxes, deregulation, restructuring Employment Insurance, securing trade and investment agreements, and many other policy initiatives intended to maintain low and stable inflation, reduce government deficits and debt, and increase "labour market flexibility." Stephen Harper's Conservative Party has loved this agenda ever since they got the keys to the Prime Minister's Office, and the Liberals followed many similar policies before that. 

The result? For almost three decades, workers have been less and less likely to see productivity growth make much of a difference in their paycheques. 

We researched "real" wages (adjusted for inflation) between 1961-2011. We were careful to apply the most generous possible definition of wages (we included all kinds of "supplementary income" such as pension and health-care benefits). But no matter how you spin it, real wages are lagging behind productivity growth. By 2011, average labour income per hour -- expressed in 2011 dollars -- was $32.20, while it would have been $36.97 had it followed average productivity growth. 

What is the impact of this failure of pay to match productivity growth? Full-time workers would take home approximately $9,540 more in their annual paycheques had their pay followed their productivity during this period.

If pay followed productivity, workers would have earned an additional 14.81 per cent per hour; instead, the $4.77 differential went to employers. And when we are talking about $4.77 per hour for every worker across the whole economy, that is some serious money flowing to employers.

When a promise is broken for most of three decades, you might start getting a little suspicious. What if the neoliberal policies proclaimed as the path to productivity growth and higher wages are part of the problem?

To examine the contribution of various neoliberal productivity policies to the widening pay-productivity gap, we created an econometric model, which is a statistical approach to examining the relationship of some influences (say, neoliberal productivity policies) on an outcome (the pay/productivity gap). We examined certain policies that are directly linked to the neoliberal productivity agenda (EI reform and the North American Free Trade Agreement) as well as other issues (union membership, minimum wage regulations, and unemployment rates), which have been affected by a range of neoliberal policies concerned with deregulation, "labour market flexibility" and anti-inflation.  

The results? Our findings are consistent with the hypothesis that these neoliberal public policies are linked with an increased divergence between pay and productivity. The delinkage of productivity and paycheques is correlated with the passage of NAFTA, the high unemployment rates that have been associated with anti-inflation policies, declining union membership, a less generous EI system, and low and falling real minimum wages.

Our research suggests that the same neoliberal policies that were introduced to encourage productivity growth make it likely that any "rising tide" will not be enjoyed by people who depend on their paycheques to get by.

Why would neoliberal public policies that were supposedly introduced to "lift all boats" prevent the gains from productivity growth from "trickling down"? We argue that the neoliberal public policies associated with encouraging productivity growth have been detrimental to workers' bargaining power. To the extent that bargaining power is shifted towards employers by public policies associated with the neoliberal productivity agenda, this presents a plausible reason why the neoliberal public policies associated with encouraging productivity have simultaneously undermined the capacity of workers to secure a commensurate share of the fruits of this productivity growth.  

Promises always sound good, especially in election season. It seems like a more productive economy should make us all better off. But depending on how they are designed, government policies to boost productivity might just make it harder for workers to translate that productivity growth into our paycheques.

This paper is a short account of our full argument which can be found in our paper, "Why Isn't Productivity More Popular? A Bargaining Power Approach to the  Pay/Productivity Linkage in Canada."

Mathieu Perron-Dufour is a professor at the Département des sciences sociales Université du Québec en Outaouais.

Ellen Russell is an assistant  professor of the Digital Media and Journalism program and Society Culture and Environment at Wilfrid Laurier University.

Photo: Amie Fedora/flickr

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