Buying Boardwalk with a Construction Union Monopoly
The construction industry is a diseased member of the Canadian economic family. The symptoms: lack of cost competitiveness and little worker democracy. Although no single source can be blamed for the all the industry's problems, much must be blamed on monopoly craft unionism.
The future health of the construction industry will require bold treatment of this entrenched labour relations system. Merely regulating the ill side-effects of this system is nothing more than palliative care.
Why should the prognosis for the construction industry concern ordinary Canadians, or even business people outside of that industry? Construction work is an almost $50 billion industry. If you want to know where economic life in Canada is going tomorrow, look at what is being built for business purposes today.
More than that, the construction industry is a vitally important part of life in Canada in general. Construction workers build and maintain our homes, workplaces, public buildings, and transportation and telecommunications infrastructure.
One way or another, ordinary folk are the beneficiaries of construction work—and ultimately foot the bill. Improving the health of the construction industry will benefit every Canadian.
Curing the ills of the Canadian construction industry requires dismantling monopoly craft unionism; promoting a healthy, competitive labour market; and giving construction workers meaningful choice over their jobs.
The existing monopoly
The construction industry is dominated by 20 international craft unions—one for each of the major trades—most of which have their headquarters in Washington, D.C. The IBEW, for example, represents electricians; the U.A. represents plumbers and piperfitters; and the Carpenters union represents carpenters.
While these unions work independently, they are also organized into a centralized body known as the Building Trades Council (BTC). Slight variations in names and number of unions make up the BTC in various jurisdictions, but generally this structure is in place in each province.
Across the country, construction labour relations is governed by a separate section in most provincial labour codes. Different rules apply because of the temporary nature of construction work. The size of the workforce can fluctuate dramatically from day-to-day. Thus typical definitions of a workplace don't suit construction, given that on any day a dozen contractors might be working on a single construction site owned by a third party.
In Canadian labour relations, the system that has evolved grants unions greater control of the skilled labour pool through hiring halls. Workers rely on their union, rather than their employer, for access to work, and a close affinity develops between construction workers and their trade union.
While the legislation in each provincial jurisdiction evolved out of peculiar local circumstances, there are common threads. Labour instability, sometimes expressed through work stoppages, other times through hooliganism, was affecting the willingness of investors to build in Canada and the economy in general.
Governments, after the usual flurry of commissions and reports, responded by instituting a province-wide system of bargaining. This system reduces the possibility of disruption to once every two or three years, since all of the contracts are renegotiated simultaneously.
As an increasing percentage of the skilled construction labour force seek work through union hiring halls, unions increase their clout in the industry. The natural tendency of any group to expand its influence, combined with the monopoly philosophy of most construction unions, leads to more dubious practices.
The most common is the affiliation agreement, which takes different forms in different jurisdictions. Essentially, this is a negotiated arrangement in which one craft union uses its clout to contractually obligate the contractor to employ only members of other craft unions. Construction sites are open only to members of BTC-affiliated unions.
Affiliation agreements simply accelerate the trend where the only meaningful access to work is through the existing local of a union representing the particular craft. Soon, the union has monopoly control over the skilled workforce in a particular trade. If you want to work, you must become a member of that particular craft union.
These unions naturally become the political voice for workers on industry training, safety, and other advisory committees. They exercise their political clout to strengthen their monopoly on public work by ensuring that union affiliation is written in as a condition on the tendering policies of municipalities and school boards or through government action, as is the case in B.C.
This arrangement is not opposed by contractors organized by craft unions. From a contractor point of view, there is little concern about the particulars of a given agreement since they and their competitors are on the same footing when bidding against each other.
The entire arrangement is geared toward monopoly control of the workforce by the union and oligopoly contractor control of a sector. Both sides have a self-interest in keeping the structure closed to outside intruders.
Monopolies create their own problems
This monopoly control is not absolute. Various niches within the construction sector exist where alternative and nonunion competitors have gained market share, and buyers of construction bring their own pressures. For many multinational companies, construction costs are a major determinant of where investment dollars are directed.
And there's always the government. Corporate interests have the ear of government, and industry insiders are all too aware that their cozy arrangements exist only as a result of legislated protection.
Examples in Alberta and British Columbia can be pointed to which remind unions that being too greedy topples the whole applecart. In both cases, the provincial governments have greatly reduced the effectiveness of the BTC monopoly.
Still, there are a number of unhealthy problems associated with monopolies. An extreme example is the 1997 charges against four Toronto-area electrical contractors who pled guilty to bid-rigging and were fined $2.55 million. They took turns cashing in on lucrative jobs, such as Toronto's SkyDome project.
We might be tempted to say that the system works because Competition Act convictions were obtained in this case. But anti-competitive behavior is simply a logical extension of monopolies. The use of job targeting funds is a good example.
Stabilization Funds, Job Targeting Funds, Market Enhancement and Recovery Funds—different monikers for the same thing—were designed by craft unions to protect their monopolies from outside competition. Essentially, funds are pooled between a group of contractors to subsidize bids against contractors not part of the group, ensuring work goes to members of the group and not alternative union or nonunion contractors and workers. More than 32 such arrangements across Canada collectively transfer over $100 million through these funds each year.
Why are these collusive-sounding arrangements tolerated? Because the funds are negotiated with and administered by unions, which are covered by the collective bargaining exemption in the Competition Act.
Another anti-competitive tactic used by BTC unions and their contractors is the closed site. Whether through subcontracting agreements, affiliation clauses, or working agreements, the result is the same. A contractor who enters into a relationship with one craft union ends up bound to them all.
For example, a general contractor employing three carpenters can be forced to use only subcontractors organized by the affiliated local of the Building Trades in any of the other crafts. This closes the door to nonunion or alternative union workers.
The most debilitating aspect of monopoly unionism—as with any monopoly—is it's inherent resistance to change and innovation.
Each craft union runs their own pension plans, benefit plans, and skills upgrading and apprenticeship programs. Even when technological and work organization changes suggest a different craft division would be more beneficial, those who don't want to see their own influence diminished present an almost insurmountable obstacle to change.
But this comes at a huge price. In competition to provide work for their members, union leaders are under tremendous pressure to push the envelope in defining their jurisdiction. This results in lengthy and expensive litigation between craft unions, not to mention the occasional work stoppage as less democratic tactics are used to resolve issues.
A growing trend in construction is towards the multiskilled construction worker who stays on the project longer than his craft counterpart. The extreme of asking a worker to do the job of 18 different crafts is rightly criticized. But a healthy balance exists where the number of crafts can be significantly reduced, and workers are properly trained and qualified to perform multiple tasks.
Although broadly-based public studies are not readily available, respected construction experts have identified four to eight core skill groupings which, with proper training, could handle all construction work.
At a symposium held in Sherbrooke, Quebec in June 1999, Alberta Building Trades President Robert Blakely admitted that reducing to six or eight trades made sense from the perspective of work organization, but was not politically possible. Some large construction buyers have anecdotally projected cost-savings in the 20 per cent range by reorganizing work outside of the existing craft structure.
A commissioned study in 1998 of the legislative framework of the construction industry in B.C. conducted by James Kelleher and Stan Lanyon, two former B.C. Labour Relations Board chairmen, confirms that craft unions have had a difficult time adjusting to competitive realities. In that province there is a growing alternative union presence.
The study confirmed that the BTC unions have "had a very difficult time adjusting to the new realties that they are facing in the construction market of today" and "had difficulty taking a consistent and realistic position in addressing their recent competitive disadvantages."
The recommendation of the BTC to effectively grant them back their monopoly was rejected by Kelleher and Lanyon who argued that "two models of trade union representation do exist within this industry. In our view employees should have the choice of which model they support."
Where alternatives exist to the monopoly craft union model, it does so in spite of, not as an objective of, public policy. The legal framework is not hospitable to alternative unions active in construction work.
Unions, including the IWA, CEP, and BCGEU, do work that otherwise would be considered the jurisdiction of the BTC unions. These unions already have a relationship with buyers (i.e., they represent the inside workers at a plant where an expansion is taking place) and use this relationship to expand into the construction sector.
The Christian Labour Association of Canada (CLAC) has organized in the construction industry since the 1950s. By organizing all crafts into a single agreement, it has taken advantage of the work organization efficiencies offered outside of traditional craft structures. During the 1990s, CLAC has more than tripled in size. It is a major player in certain construction markets.
Other unions, such as the Power Workers Union (the union representing Ontario Hydro workers), have sought to expand into the broader construction industry to counteract downsizing in their traditional areas of activity. Their efforts have been hampered by a negative Ontario Labour Relations Board ruling on the basis of existing legislation.
In spite of the many positive examples of alternative unions active in the construction industry, policy makers still have their minds focused on dealing with the BTC monopoly. When the petrochemical producers in Sarnia's Chemical Valley came to the Ontario government last year complaining that the construction labour monopoly made their competitive position untenable vis-a-vis other jurisdictions, the response was project agreements.
Under these agreements, the BTC unions strike a special deal for a given project. Tellingly, the quid pro quo of the first agreement reached in June of this year was that in exchange for some concessions on their provincial package, the Building Trades would get monopoly protection for maintenance work on new plants for five years after opening.
As long as government and industry policy makers continue to think only in the bipolar terms of union/nonunion, monopoly craft unionism will sicken the construction industry. Each new provision is met by a creative quest for new loopholes as certain contractors and BTC union leaders collude to maintain their established privileges.
The real losers are construction workers, who are denied meaningful union choices; industry, as creative energies are directed to preventing competition rather than to innovation; and society, as an important sector of our economy operates in an artificial economic bubble.
The solution? Don't try and regulate the labour monopoly. Dismantle it. Allow other unions to enter the industry and provide meaningful choice to construction workers. Accompany increased choice with strengthened protections for workers who choose to join a trade union. Go back to the basics of contract law. Restrict the ability of unions and contractors to determine terms and conditions of work for those not at the table. (Why should an electricians' union have the right to determine to which union the plumbers on a jobsite ought to belong to?) Ensure that public projects are awarded on the basis of skill and competence to do the job, not on an artificial set of criteria designed to ensure that only certain unions and the employers of their members need apply.
Devising legislation that promotes worker democracy and provides for healthy competition in the construction sector isn't brain surgery. It takes fortitude and vision.
The archaic craft model, rooted in the nineteenth-century guilds, needs to be replaced with a progressive labour model that embraces change, encourages innovation, and respects choice. The result will be a healthier Canadian construction industry, one capable of creating and sustaining jobs in the twenty-first century.