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Labour Competition and Ontario Construction Costs: An Alternate View

April 1, 2009

Stephen Kushner

Work & Economics

Policy Brief

Not unlike other industries, construction tradespeople seek wages that are fair in their market.

Canada is a vast country comprised of many regions and a diverse construction labour force that developed differently in each region. Construction is a significant industry in Canada’s economy. Accordingly, understanding cross-regional labour relations models and the influence these models have on construction costs is important. Ontario is Canada’s largest construction market. The Fall 2008 edition of Cardus Policy in Public contained two separate essays on Ontario construction costs.

Ray Pennings kicked off the debate in “Why is Construction so Expensive in Ontario?” He concludes there is a need to quantify the difference between Ontario’s construction costs and the rest of Canada. I agree completely. There are, however, areas of his analysis that need further review.

A separate essay by Bob Blakely of the Canadian Office of the Building and Construction Trades Department of the AFL-CIO provides a traditional view of construction labour relations. Mr. Blakely does not respond directly to the assertion that Ontario construction costs are comparatively high. Rather, he argues that labour competition is inherently bad and that Quebec’s mandatory union model with an enforced, uniform, wage rate system would be a good model for Ontario to adopt. Though courageous in entering this debate, I believe Mr. Blakely’s analysis and solutions are dated and if carried forward would diminish the construction industry’s competitive position in Ontario.

Pennings’ thesis is that there are three distinct labour pools; building trade union, alternative union and non-union in construction. This assertion is perhaps too simplistic and inadequately recognizes the impact competitive labour structures have had on the Western Canada’s construction industry.

For example, alternative unions cannot lawfully represent construction employees in Saskatchewan. The industry has functioned without an alternative union option for almost fifteen years. Yet, the building trade union monopoly ended there years ago.

Alternative unions are a vibrant part of the construction scene in Alberta and B.C. However, to understand why this is the case, one needs to examine construction workers, their relationship to the various labour structures and the key influences that promoted the development of alternative contractor options in these provinces.

Not unlike other industries, construction tradespeople seek wages that are fair in their market. Most prefer to work close to home; desire rewarding and challenging work; want respect from the company and supervisory team; and, require a safe work environment. Given these prime motivators it would seem that working union, non-union, or alternative union is a minor consideration for 70-90% of the construction workforce. Further, working under a union agreement, the obligation to pay union dues is nothing more than a tax on wages to secure employment for many.

Clearly some tradespeople will never work for a non-union firm based on ideology. An equally small few will never work for a unionized contractor based on negative past experiences. However, it seems likely that most tradespeople care little about the union, non-union dynamic.

This is borne out in construction industry union certification statistics that show little evidence that unions are achieving significant successes with bottom up organizing campaigns. Even with the growth of independent construction unions, the percentage of workers covered by a construction collective agreement has steadily declined over the past twenty years. Today in Canada about 70% of the industry is non-union. This indicates that contractors and tradespeople are directly and with mutual satisfaction coming to terms on issues such as employment opportunities, wage and benefit packages, work location, hours of work, general work conditions, safety and duration of employment.

Along with attractive wages, benefits, retirement programs, excellent working conditions, and training opportunities, the growing presence of non-union employers has meant that these employers are capable of providing tradespeople with greater continuity of employment for longer durations. This is a key feature in the employer-employee dynamic in the non-union setting. Notwithstanding that both Pennings and Blakely argue that project based tenure precludes forming long term attachments, significant numbers of non-union tradespeople are employed by the same employer for periods of one, three, five years or longer.

While open shop workers may go from job site to job site, they are generally working for the same employer. In contrast, a building trade union worker is often precluded from doing this for structural reasons related to the union hiring hall which in many cases discourages loyalty to the employer and promotes loyalty to the union.

If one accepts that the majority of workers have no specific loyalty to one of these so-called labour pools then why has open shop construction flourished in the West and stagnated in Central Canada? My answer is that it is about contractor capability and capacity and has nothing to do with work pools.

When the economy was devastated in the early 80s in Alberta and Saskatchewan, the industry re-structured. The technical capacity of the non-union sector grew very quickly because the managerial skills of estimators, project managers, superintendents, and construction managers transferred from union firms to non-union firms. At the same time, financial capacity grew and it was not long before large commercial projects were completed on a non-union basis.  In Alberta and Saskatchewan, this transition happened very quickly in part because of key Labour Board decisions, while in B.C. this evolved over time starting in the mid 80s.

However, even in Alberta this major shift did not occur in the industrial sector until two key changes occurred:

  1. Contractor capacity increased by merger and acquisition as newly structured firms took on larger projects.
  2. As the open shop sector matured and implemented fully competitive human resource compensation and training programs, the owner or purchaser community made strategic decisions to allow more open shop firms to work on larger Wood Buffalo region projects. This provided the stimulus for firms to establish a presence in the region and increased the number of open shop firms capable of working in the industrial sector and increased their ability to take on larger projects and more diverse work.

Clearly, sufficient numbers of tradespeople responded favourably to working with non-union or alternative union firms on industrial construction projects. Were this not the case, it would have been impossible for contractors to recruit tradespeople. Alternatively, these contractors would have faced an onslaught of successful union certification campaigns. Neither scenario played out despite a concerted effort by some building trade unions to fine members working with “black listed” non signatory contractors.

So, why has the non-union and alternative union sector not flourished to the same extent in Ontario?

I offer two reasons:

  1. Contractors have shied away from taking on greater risk with larger, high profile projects because certification rules grossly favour building trade unions. Union power vis a vis their quasi monopolistic position on larger projects is also enhanced through the use of job targeting (stab) funds, subcontractor restrictions and pressure on purchasers to restrict bidders to Building Trade signatory firms.
  2. The purchaser community has yet to make strategic decisions to support non-union and alternative union firms.  Municipalities like Toronto and Hamilton and some School Boards have restrictions that preclude them from contracting with non-building trade signatory firms. Larger developers and industrial purchasers have also yet to make strategic decisions to support more competition like industrial purchasers did in Western Canada in the late 1990s and in the 1960s in the U.S.A.

In Ontario the building trade unions have extended their power by strategically supporting the provincial Liberal government over the past two elections. This government has in turn further entrenched the status quo by removing the secret ballot vote only for the construction industry, inhibiting new workers from entering the industry by keeping apprenticeship ratios high, and supporting union training centres as opposed to providing more support to post-secondary institutions that train across the entire industry.

The open shop sector will only grow when the purchasers and governments grow weary of paying too much for construction. Governments must also recognize their role in promoting work place democracy and taxpayers must encourage politicians to recognize that full value for public infrastructure dollars can best be achieved in an environment where competition is encouraged rather than restricted only to building trade union contractors.

The established building trade union view of labour relations as expressed in Mr Blakely’s retort is based on faulty premises. He suggests that:

  1. mandatory unionism as practiced in Quebec construction is a model for future competitiveness that provides adequate choices for workers.
  2. innovation within the craft based union model can progress quickly enough to meet future competitive needs.
  3. if all firms were unionized and all paid the same wages then competition would be fair and construction costs in the future would be reasonable.

Let’s examine each of these premises:

I. Mandatory unionism in Quebec: Building trade unions argue that workers’ choice in picking one union among several unions in Quebec is all the choice that workers need and that the choice to work union-free is not an option and should not be an option. This is equivalent to suggesting that freedom of religion exists when adherents may only choose from a predetermined list of established religions.

The situation in the Quebec construction industry is one of the great work place injustices in the private sector in Canada. Recognizing this system was a response to rampant violence and corruption that ruled the industry decades ago, no other industry faces such restrictions on worker choice. Upwards of 50% of construction workers in Quebec work illegally outside the framework of forced unionization. When the laws are unfair people find ways around them! How the model of forced unionization inhibits innovation and increases
construction costs would be a worthy topic of a future study.

I. The craft union model: International building trade union jurisdiction rules, based on historical relationships of which unions normally completed certain work is a most inefficient way to determine how work should be organized in the future.  The innovation opportunities within the craft based model will always be inferior to the options of a system free of historical constraints. Technological change, new products and new methods of construction are vitally needed to improve competitiveness.  The industry must be allowed to innovate without the shackles of a craft model based on how work was organized one hundred years or longer ago. As long as building trade unions embrace the work rules of the past, they will lag in their ability to compete with those who can innovate free of historical precedents.

I. Wages: Mr. Blakely argues contractors paying the lowest wage will get the work and that competition inevitably results in “race to the bottom”.  This simplistic view of construction is out of step with reality.  In Alberta many non-union contractors pay equal or above union scale wages, provide benefits, and retirement programs and have over time increased their market share relative to union contractors.  They have been successful in part, through their ability to provide incentives to employees who produce superior results (pay for performance compensation practices), and by deploying their work crews more efficiently. Supervisors can hire tradespeople based on past performance and skills, not based on order of availability in the hiring hall. Firms also have the flexibility to offer hours-of-work arrangements that meet the needs of both the client and the workforce. It is amazing how effective a team of workers can be when they focus on getting the job done in the most efficient way and have the security of knowing there will be a project to go to once the current one is completed. Contrast this with union jobs where workers stretch out job schedules because they know the consequences of being back on to the union hall out-of-work list.

From time to time union wage rates get out of step with the market. When wages are too low union firms can’t attract workers and when wages are above the market, the unionized contractors competitive position is eroded at an even greater rate. The challenge for unions, their leadership and their contractors is to make the right call all the time on wages and when they miss which will happen then move to adjust wages in a timely way before their competitive position erodes. This challenge is not easy to meet within the framework of union democracy.

As long as building trade unions continue to believe that the main reason they are losing work to the open shop sectors is because the open shop offers lower wages, then they will miss the opportunity to make the internal changes necessary to provide a better value alternative to the client community.

In summary, Ontario needs a fully competitive construction environment whereby alternative union and non union contractors are given the opportunity to bid for work in new sectors (municipal, educational and industrial) that have not been accessible. These contractors must be given opportunities to bid for work by clients who understand the need for a more competitive structure within the industry.  The Ontario government must also provide a playing field where organizing rules are fair, where job targeting programs are eliminated and where union influence is curtailed at the political level.

The government must facilitate effective competition rather than build protective barriers for those who wish a monopoly. In these ways perhaps Ontario will develop a more competitive and effective construction industry and perhaps secure more construction work opportunities for its tradesmen who desire to work in their home province.