Collective bargaining in Ontario: New trends, new possibilities

New possibilities for collective bargaining in Ontario
New militancy: Recent strikes in the broader provincial public sector by 13,000 university teaching assistants and Community Care Access Centre employees (mostly RNs) suggest increased willingness of some broader public sector employees to strike to maintain and improve their working conditions.  Moreover the workers achieved some success in their strikes.  In the health care sector, the Health Minister, Eric Hoskins, felt it necessary to publicly call for the negotiations to be settled by interest arbitration.  Shortly after this, a leading arbitrator awarded both of the proposals (wage proposals) demanded by the union.

Both of the recent Teaching Assistant strikes at York and the University of Toronto put paid to the government's idea of "net zero" compensation increases, at least in the university sector, as the strikes made progress for those workers. Provincially coordinated teacher strikes are now underway to deal with the government's demands as well.  

Clearly there is now more appetite among public sector workers to change the bargaining climate.  Essential service workers (like hospital workers) can only benefit from this as interest arbitration (the method for resolving contract disputes for essential service workers who are not allowed to strike) follows established trends among comparable workers.

That said, the bargaining climate for provincial public sector workers remains difficult. 

Recent Bargaining Trends: Provincial broader public sector settlements averaged 1.3% in 2014, a significant improvement over 2013.  Nevertheless, they are lower than private sector settlements for the fifth year in a row, as private sector settlements averaged 1.8% in 2014, half a percent higher.

On an annual basis, private sector settlements have averaged 1.84% since 2010, while broader provincial public sector settlements have averaged 1.20%.  That means private sector settlements have averaged 0.64% more per year.

Federal public sector settlements have done better than provincial broader public sector settlements, but worse than municipal settlements and private sector settlements, with an annual average of 1.68% since 2010.  Stephen Harper has increased public sector wages more than the Ontario Liberals.  Even so, in 2014, federal settlements have averaged 1.5%, very similar to Ontario provincial broader public sector and municipal settlements. 

Broader provincial public sector settlements have fallen behind the annual inflation rate for the fifth year in a row.  Here the gap is larger, with Ontario inflation averaging 2.08% annually for 2010 through 2014.  That contrasts to the average annual provincial public sector wage settlement of 1.20%. 

In other words provincial public sector settlements have, on average, trailed the annual inflation rate by 0.88% each year for the last five years. That is a shortfall of almost 1% per year for five years ― quite a gap. 

This, of course, flies in the face of those who would like to portray provincial public sector workers as receiving rich settlements.  The reality for the last five years is that broader provincial public sector settlements have fallen well short of the annual inflation rate and that private sector settlements have been significantly higher. 

Municipal public sector settlements: Municipal unions have done a little better ― averaging 2% per year from 2010 through 2014 (although this is still short of the inflation average).  Municipal government settlements with police and fire have played a role here.  

Also notable ― the advantage of municipal settlements over provincial broader public sector settlements is at the lowest level since 2010:  municipal settlements in 2014 averaged 1.7%, only 0.4% higher than broader provincial public sector settlements.  In 2013, the gap was a huge 1.9%, as provincial public sector wage settlements hit a low point.  

2015: With settlement data only available for January and February, the general trend of 2014 continues: broader provincial public sector settlements have an average annual wage increase of 1.3%, municipal settlements average 1.7% and private sector settlements average 1.8%. Notably, the latter two are, at least, above the bank-predicted rate of inflation for 2015 (of 1.3%)  -- even if well short of the predicted rate for 2016 (2.4%). 

Government's bargaining position: The government's position in the 2015 Budget regarding the 787,000 workers in the "broader provincial public sector" (i.e. broader public sector workers excluding federal and municipal government employees) is as follows:  
Compensation costs must be addressed within Ontario’s existing fiscal framework, which does not include additional funding for wage increases. Any modest wage increases must be offset by other measures to create a net zero agreement, and all public-sector partners must continue to work together to control current and future compensation costs.  (My emphasis --DA.)
Just after this, however, the Budget brags that the government will have reduced pension expense for public sector workers by $2.3 billion per year by 2017/18, for a cumulative savings of $6 billion over the five years since 2012/13:  
In 2012, the Commission on the Reform of Ontario’s Public Services forecast that pension expense would increase by $1.1 billion over the period from 2012–13 to 2017–18. The current government forecast of pension expense projects a decline of $2.3 billion over the same period, resulting in a cumulative reduction of $10.3 billion compared to the Commission’s forecast. This represents a further improvement from the 2014 government forecast, which projected a decline of $1.5 billion over the same period and a cumulative reduction of $8.7 billion compared to the Commission’s forecast.

TABLE 2.1 Difference in Projected Pension Expense versus Commission on the Reform of Ontario's Public Services' Forecast
($ Billions)
Commission Report3.
Current Forecast3.
Difference in Forecast(0.1)(0.8)(1.2)(1.9)(2.8)(3.5)
Source: Ontario Treasury Board Secretariat.
A $6 billion expense saving would work out to over $6,000 per public sector worker

These pension expense savings just keep on getting bigger and bigger:  
  • In the 2013 Budget, they estimated a total savings of $2.1 billion from 2013/14 through 2017/18 (and $600 million this fiscal year alone).  
  • In the 2014 Budget, they estimated a savings of $4.3 billion from 2013/14 through 2017/18 (and $1 billion this fiscal year alone).  
  • Now in 2015, they estimate a total savings of $6 billion from 2013/14 through 2017/18 (and $1.2 billion this fiscal year alone).  
Elsewhere in the 2015 Budget, the government also suggests major savings for single employer public sector pension plans.  

These offsetting "other measures" should allow some significant compensation increases  -- even in the government's imagined "net-zero" compensation world. 

Decline in pension expense opens possibilities in Ontario collective bargaining

The results of five years of struggle:  Predictably, during the recession private sector workers took it on the chin, before recovering to a better bargaining position.  But, also predictably, a year after the recession had ended, the province started to use the recession and the new provincial deficit as an excuse to go after public sector workers.  

In the summer of 2010, the provincial government required unions to consult extensively with them on their goal of zero wage increases for two years. The unions, by and large, did not agree to those terms.  The Dalton McGuinty government stepped up its campaign in 2012 by demanding wage freezes, concessions, and then implemented legislation attacking free collective bargaining when public sector workers did not agree to those terms.  

This dramatic step up in their demands was political not fiscal.  In 2010, when the McGuinty government started its campaign for a wage freeze in the provincial public sector, citing the state of the public books.  At that time they had estimated deficits totaling $74.2 billion from 2009/10-2012/13.

Deficit (in billions of dollars)
2010 Budget
2013 January
Reduction in Deficit

However, these proved utterly unrealistic ― the real deficits by early 2013 were actually $16 billion less.

Despite the decline in the deficits, by the summer of 2012 the government increased their demands on broader public sector workers.  A wage freeze would no longer do ― now it had to be a wage freeze plus significant financial concessions (e.g. cuts to sick leave and retirement pay-outs).  The government claimed that their plan would save $8.8 billion over three years ― i.e. much less than what they had already paired from the deficits since they started their wage freeze campaign in 2010.

The government was quite prepared to attack free collective bargaining to get the concessions they desired, despite the fact that major unions opened bargaining with a proposal for a wage freeze ― a freeze which would have accounted for much of the government's savings goal.

But, fortunately, this new approach led to some significant, if very uneven, fight backs by working people that undermined the McGuinty government’s claim that it offered something different from the public sector union bashing of the previous Progressive Conservative government.  The popularity of the McGuinty government declined dramatically (aided by the privatized P3 gas plant scandal) and both McGuinty and Finance Minister Dwight Duncan quickly announced their resignations.

The new premier, Kathleen Wynne, kept the goal of zero compensation increases in the provincial public sector, but reduced the emphasis on concession demands and abandoned -- or at least temporarily moved away from -- the threat of legislative attacks on collective bargaining in the public sector. Whether the government sticks to the principles of free collective bargaining we shall soon see as the teacher strikes unfold.

Broader public sector wage settlements within the provincial government’s domain (i.e. public sector settlements excluding federal and municipal settlements) have significantly increased since 2013’s stingy 0.3% average annual settlement.  

But if they continue to improve will depend on the current struggle. Employers and right wingers saw the recession as a opportunity to set back unions -- and achieved some results (from their point of view). But the recent struggles by public sector workers suggests that their gains may only be short term -- the attacks have, in some cases, led to stronger public sector unions.


Ontario's economy improves. Will collective bargaining follow?

The Ontario Economy:  The 2015 Ontario Budget has revised the government's real growth estimate up significantly from its 2014 Fall Economic Fiscal Outlook.  Real growth for 2014 is now put at 2.2% for 2014, up from the fall forecast of 1.9% and real growth for 2015 is forecast at 2.7%, up from their fall forecast of 2.4%.  Both of these forecasts are slightly lower than the forecasts from the banks and other private sector forecasters. 

With lower oil prices and a lower dollar, Ontario is now growing faster than the rest of Canada.

Substantial Real Growth -- but who benefits?  Seven years ago (starting the latter half of 2008) there was a recession in Ontario.  It ended six years ago when economic growth began again in the third quarter of 2009 (i.e. July-Sept 2009).  Since that time there has been significant economic growth, placing the Ontario economy well above its pre-recession high.  

Ontario, Gross Domestic Product (GDP)

($ Billions)

Real GDP (chained $2007)
Nominal GDP
Real GDP increased $34.6 billion (in constant 2007 dollars) by 2013 compared with the pre-recession high in 2007.  That is a 5.78% real increase over the previous high point.  

The new provincial Budget forecasts another 7.5% real growth for 2014 through 2016.  Private sector forecasts are slightly higher.  While (as the next blog post will demonstrate) workers have not benefited from this real growth, some others must have done very well indeed

Nominal GDP (real growth plus inflation) has increased even more significantly, increasing $97.9 billion dollars between 2007 and 2013, a 16.4% increase.  The provincial Budget forecasts another 12.5% nominal growth for 2014 through 2016.

Thirty percent growth in nominal GDP is significant for at least two reasons.  First wages are paid in nominal dollars: they are not automatically adjusted for real growth or inflation.  To maintain their relative share of the real economy and to protect against inflation, compensation must be adjusted.

Second, nominal GDP growth is the key driver of government revenue increases. As it increases, so do government coffers, increasing the government's ability to spend. 

Unemployment falling: Given significant real economic growth, the Ontario unemployment rate has declined.

Source: Statistics Canada CANSIM Table 282-0087 http://www5.statcan.gc.ca/cansim/a47

For the first two months of 2015, the Ontario unemployment rate was reported at 6.9% by Statistics Canada. The provincial Budget forecasts that it will hit 6.3% in 2018.  

Ontario consumer inflation is predicted to dip in 2015 but return to the 2.3% range in 2016, with the bank estimates averaging 2% per year over 2014-2016.

Royal Bank2.21.42.2
Bank Average2.271.32.37

Federal Transfers to the provincial government are also driving up revenue: The recently announced major federal government transfer payments to Ontario for 2015/16 (for equalization, health and social transfers) are also much higher than expected.  In fact, about $450 million more than the $800 million increase the provincial government anticipated for all federal transfers to the province.  (Stephen Harper is, after all, facing an election this fall.) 

In total Ontario will receive $1.253 billion extra ― or 6.5% more than the federal transfers to the Ontario government for 2014/15. That, just in itself, is equal to a 1.1% increase in program spending.

The bulk of these increases are for health care. The federal health transfer to the province is up $735 million for 2015/16.

Federal Support to Ontario (millions of dollars)
Canada Health Transfer
Canada Social Transfer
Total - Federal Support
Per Capita Allocation (dollars)
Source: Canadian government, Dept. of Finance:  http://www.fin.gc.ca/fedprov/mtp-eng.asp#notes

Planned provincial spending falls flat:  The 2014 Budget planned total spending at $130.4 billion.  This year's Budget plans total spending of $131.9 billion, an increase of $1.5 billion -- or 1.1%. Notably, the provincial government is actually budgeting less for 2015/16 than they said they would budget for 2015/16 in the 2014 Budget -- $200 million less.

Moreover, almost all of the new spending planned by the provincial government is actually just increased transfers from the federal government -- 83% of the total planned increase comes from increased major federal government transfers to the Ontario government ($1.25 billion out of a total increase of $1.5 billion).  

As the government generally spends less than the planned figure set out in the Budget, it is very possible that all of the actual increased spending at the end of the year will be from federal transfers.

For health care, the situation is more extreme. Health care was budgeted at $50.055 billion in the 2014 Budget.  It is now budgeted at $50.8 billion for 2015, an increase of $745 million (or 1.5%). In other words, the Ontario government is planning to increase health care spending by less than the $753 million increase in federal transfers for health care.

The Ontario government is providing fewer new dollars for health care from its own sources than last year.

(Note: the percentage increases noted here are a little different than some other commentators.  Here, I have compared figures in this year's Budget to the figures in last year's Budget and not to the interim figures for last year in this year's Budget.  As the government typically under spends their Budget, comparing this year's budgeted figures with the interim figures for last year reported in this year's Budget will likely exaggerate the rate of increase. Better to compare figures set at the same time in the respective fiscal years to get comparable figures.)

The Province’s Fiscal Situation: The provincial deficit has been used as a powerful tool to justify attacks on public sector collective agreements, with the government falling into significant deficit during the last recession in 2008/2009.

So it is notable that the Ministry of Finance has once again reduced its estimate of the provincial deficit, lopping $1.6 billion off its estimate of the 2014-15 deficit in late March bringing it down to $10.9 billion. Based on past experience and the improving economy, a further reduction may occur when the government finalizes its 2014/15 deficit with the Public Accounts in the early fall of 2015.  (Last year's Public Accounts took another $800 million off the deficit compared to what the government stated it was in last year's Budget, so a further cut may be coming this year too.)

The 2015 provincial Budget forecast a deficit of $8.5 billion for 2015-16.  This is $400 million less than forecast for 2015-16 in the 2014 Budget.   Roughly $200 million of this is due to the fact that the government now plans to spend less than it planned in the last Budget. 

The consistent pattern for this government has been to make Budget forecasts that overestimate the deficit.  On average they have overestimated the deficit by 31% for each year since the 2009 Budget.

Based on past experienced, the $8.5 billion deficit for this year may well be overstated too.

Upcoming on April 30: Collective Bargaining Settlement Trends: New Possibilities?

Photos: Kat R Canadian Money

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