Andrew Jackson, Canadian Labour Congress
Andrew Jackson is a Senior Economist with the Canadian Labour Congress.
Social exclusion is often thought of primarily as an issue of low income, and there is no doubt that precarious jobs – low-wage jobs that carry a high risk of termination – are a major cause of low family incomes and poverty. However, good jobs are also important to social inclusion in the wider sense of contributing to an individual’s ability to develop her or his talents and capacities, to participate actively in society and to enjoy a broad equality of life chances with fellow citizens. Precarious work is a key challenge for Canadian policy makers, because it condemns a significant proportion of citizens to lifelong exclusion from progressive job ladders and opportunities for skills development, and because these risks are concentrated among defined groups who face multiple sources of disadvantage, such as recent immigrants and lone parents. Precarious work is also highly gendered and undermines the goal of labour market equality between women and men (Vosko et al., 2003).
This article argues that precarious jobs are a key cause of social exclusion, and flags some policy directions based on European experience that may improve job quality at the bottom of the labour market. The first part of the article describes some of the major characteristics of precarious work in Canada today and the links to social exclusion. The second part outlines broad lessons that Canadians might draw from the social democratic labour market model found in some smaller European countries. These countries have achieved high rates of employment with low levels of precarious work. The final part offers concluding comments.
Precarious Work in Canada
By some measures, Canada did well on the job front over the whole cycle of recession and recovery from 1989 to today. The proportion of the adult population with jobs reached an all-time high in 2003, and was one of the highest in the world. Talk of a knowledge-based new economy is overblown, but there is indeed an ongoing shift toward jobs requiring higher levels of education and skills. These types of jobs, in turn, usually provide higher pay and greater job satisfaction, and have promoted more equal opportunities for women. However, the overall job picture is marred by serious flaws. Most notably, Canada has a high and rising incidence of precarious jobs, and such low-paying, unstable jobs have contributed to a significant increase in inequality that threatens social inclusion.
Over the past decade, real hourly wages and median annual earnings have been remarkably stagnant, especially for men. Gains in earnings at the middle and lower end of the income distribution have been meagre, and earnings inequality has increased significantly over the economic cycle. Statistics Canada data (2003) show that the top 20% of families, with average market incomes of $145,580 in 2001, took 45.6% of all market income in that year, up from 42.4% in 1989. This reflects increased polarization of individual earnings. As Saez and Veall (2003) reported, the earnings of the very top 1% have grown fastest. Their share of all individual income as reported on tax returns rose from 9.3% to 13.6% between 1990 and 2000. Overall, the gains that have been made since the early 1990s are largely confined to the upper echelons of the income ladder, a group that already enjoyed a disproportionate share of earnings.
Rising market income inequality among families is partly driven by changes in the way people form families, but the main reason is increased inequality in the job market. Families down the income scale are more likely to be made up of people in lower-paid jobs, and are also more likely to be hit by unemployment at some time in a year. Recent studies show a significant widening of longer-term earnings differentials and life chances for Canadians in the 1990s (Beach et al., 2003). Certainly, a significant minority of workers have very unstable and low paid jobs, and many remain trapped in these jobs for long periods of time (Finnie, 2000; Janz, 2004). Large inequalities in the job market continue to exist between women and men, and have grown sharply between recent immigrants and other Canadians.
Looking more closely at these developments, data from the Labour Force Survey show that about one in four Canadian workers – one in five men and one in three women – are low paid, defined as earning less than two thirds of the national median hourly wage, or less than about $11 per hour in today’s dollars. Of particular concern, about one in ten core workingage men age 25 to 54 and one in five core working-age women are low paid. Low-paid jobs are common in sales, service, and labouring occupations, even for full-time workers, while the high incidence of low pay in part-time and female-dominated private service jobs helps explain why women are at greater risk.
Data regarding precarious jobs are also of concern. Precarious jobs generally have a low hourly pay and a high risk of termination. Spells of unemployment in Canada average about four months and, in recent years, about one in eight workers has been unemployed at least once in the year. That risk is highly concentrated among persons with lower levels of education who normally earn lower than average wages when they are employed. Precarious jobs also provide very limited, if any, access to progressive career ladders and workplace training. Dead-end jobs held by many women, recent immigrants, Aboriginal people, and persons with disabilities do not help people develop the skills and capacities they need to access better jobs, embark on lifetime career ladders, and better handle labour market risks, such as permanent layoffs due to economic change.
A precarious job does not necessarily mean poverty and exclusion. Some adult precarious workers are cushioned from poverty by the earnings of a spouse, and poverty is often the result of family breakdown and labour market exclusion rather than low earnings. However, precarious work is a significant and growing cause of Canadian poverty today. Working-poor lone parents and families cycle in and out of poverty depending on how many weeks of work they get in a year and at what wage. A single person in a large urban centre has to work more or less full time in a full-year job and earn about $10 per hour to escape poverty (i.e., be above the pre-tax, lowincome cut-off line.) The threshold is obviously higher if a single earner has to support a child or a non-working spouse. A two-adult family with children has to put in about 75 weeks of work a year at $10 per hour to get above the poverty line. Minimum wages are far too low in all provinces to put working poor families, even those with full-time, full-year jobs, above the poverty line, and even $10 per hour, full-time, full-year jobs supplemented by government income supports leave most families in larger cities at risk (NCW, 2004).
Social programs and progressive income taxes can and do significantly lessen earnings-driven differences of family incomes. However, the redistributive role of taxes and transfers among the working-age population has been eroded by cuts to Employment Insurance and social assistance entitlements. Additionally, it will be very difficult to prevent increased income inequality and promote a more inclusive society if earnings inequality continues to increase.
From the perspective of social inclusion, it is disturbing that incomes in Canada after taxes and transfers became markedly more unequal between 1989 and 2001 after remaining stable over previous economic cycles. There can be no genuine equality of opportunity if there are very large differences in family economic circumstances. Key outcomes, such as health, are closely linked to relative and not just absolute income. In relatively equal countries like Sweden, differences in life expectancy, health, literacy, education, and other key indicators of well-being between different sections of the population are much narrower than those in Canada, and gaps in Canada have hitherto been narrower than in the United States (Jackson, 2000). For all the talk of the United states as the land of opportunity, life chances, as measured by the chances of a child from a lowerincome family climbing the income ladder, are lower than in Canada, and are highest in the more egalitarian Scandinavian countries (Fortin and Lefebvre, 1998). It is to those countries that we should pay greater attention.
Limiting Precarious Work: Learning from Social Democratic Models in Europe
As Smeeding (2002) noted, highequality countries, such as Sweden, tend to be that way, because of generous social programs and because the primary distribution of income by the job market is fairly equal. There are limits in the extent to which social transfers can compensate for labour market-driven inequality, and changes to how the job market itself works must be part of the policy response to social exclusion.
The experience of Scandinavian social democracy in the 1990s suggests a combination of high employment, relatively equal wages, and real opportunities for workers in traditionally low-wage, dead-end jobs is possible. The International Labour Organization and the European Commission both recently highlighted the experience of Denmark as suggestive of a labour market model which promotes high levels of socially inclusive employment, undermining the dismal view of many orthodox economists that there is an inevitable trade-off between job creation and higher quality jobs (Auer, 2000; ILO, 2003; EC, 2002).
Denmark, Sweden, and the Netherlands all had good records of job creation and economic growth in the 1990s, with a very low incidence of low-wage work compared to North America. This suggests a different model is possible, even if it is not necessarily easy to create.
The relative success of these countries in creating higher-quality jobs and high levels of employment has been accomplished by:
regulating the labour market to create a wage floor and a low level of wage inequality;
keeping the non-wage costs of employment low by providing social and economic security primarily through public programs financed from general taxation;
providing significant investment in active labour market policies to upgrade the skills of those at greatest risk of engaging in precarious employment; and
building a distinct kind of postindustrial service economy, based on a large non-market sector and high productivity private services.
The results of this approach differ markedly from those in North America. In the mid-1990s, about one in four full-time workers in Canada (23.7%) as well as in the United States were low paid – defined as earning less than two thirds of the median national full-time wage – compared to just one in twenty workers (5.2%) in Sweden, and only one in eight in Germany (OECD, 1996). The distribution of wages in many European countries is more compressed than in North America, mainly because the wages of even private-sector service workers in smaller firms are set by collective bargaining or by the extension of union wage agreements to all workers in a sector. Advanced industrial countries differ little in terms of the big structural forces shaping job markets, such as international competition and technological change, but labour market institutions still significantly shape outcomes for workers (OECD, 1996, 1997; Aidt and Tzannatos, 2003; Freeman and Katz, 1995).
At the micro-economic level, both individual workers and firms benefit. The conventional view is that imposing decent wages for lower-skilled workers destroys jobs but, in fact, higher wages can work in a positive way by raising productivity and job quality. The fact that employers are under pressure to pay good wages will lead them to invest more in capital equipment and in training than would otherwise be the case. Wage floors can lower worker turnover and increase experience and skills, reducing employer costs. A common wage standard can also take wage costs out of the competitive equation. If all employers pay the same wage and benefit package, firms must compete with one another on the basis of nonlabour cost issues, such as quality and customer service, which require more skilled workers.
For all of these reasons, Canadian policy makers should view higher minimum wages in Canada and policies to support the extension of collective bargaining to low-wage, private service workers (with current unionization rates of well under 10%) in a much more positive light than is generally the case.
Social democratic countries, such as Sweden and Denmark, have boosted job creation in ways that do not depend on low wages. Employers are expected to provide decent wages, working conditions and training but, unlike many high unemployment European countries such as Germany, they are not expected to fund social programs and benefits in a major way. Unlike Canada, pensions and extended health benefits are provided mainly through government programs. Paying for social programs and pensions from general taxes rather than from payroll taxes or from firmlevel welfare plans keeps total labour costs under control. This approach also narrows differences between core workers with good benefits and precarious workers with no benefits. The lesson for Canada is to build gradually on medicare by extending the reach of public health plans and of public pensions.
The Scandinavian countries have long emphasized employment security rather than job security, now termed “flexicurity.” This means firms can hire and lay off workers fairly easily, but governments have the responsibility to promote full employment. Additionally, governments with employers and unions have the joint responsibility to promote training and run meaningful and effective labour market policies. This means non-standard forms of employment are accepted, so long as wages and opportunities for training are non-discriminatory (as specified in the European Union directive on part-time work).
To support this approach, the Scandinavian countries invest heavily in public education, and in workplace training and active labour market policies to promote labour adjustment and lifelong learning. Remarkably, the Danish government spends five times more than Canadian governments on public training programs, even though the unemployment rate in the two countries is similar (Madsen, 2003). Training for the unemployed and workers in precarious employment helps equalize access to job opportunities and creates a base for higherquality jobs. Training can be a real force for better jobs in normally low-wage private services by enabling employers to pursue business strategies requiring higher skills and lowerskilled workers to climb job ladders.
There has been scepticism in Canada about the effectiveness of skills training for vulnerable workers, but research increasingly shows that turning the rhetoric of lifelong learning into real opportunities for lower-paid workers yields major benefits in terms of job quality (ILO, 2003; Madsen, 2003; OECD, 2004). Applebaum et al. (2003) supported these positions through detailed case studies of jobs in traditionally low-wage sectors being significantly improved through a combination of higher skills and employer strategies that take advantage of those skills. With these findings in mind, governments in Canada should re-evaluate their positions regarding the potential benefits of training for vulnerable workers.
Finally, differences among advanced industrial countries regarding the structure of post-industrial employment are informative. These differences largely depend on the extent to which child and elder care and other community services have been assumed by the market or by the state. When the option of state and not-for-profit service delivery is chosen over delivery by market actors, the result is often the creation of more skilled and well-paid jobs, particularly for women. The associated choice of higher taxes for public services also means households have less after-tax income for consuming private services, resulting in fewer low-quality service sector jobs (Esping-Anderson, 1999; Pierson, 2001). Strikingly, one in six of the total working-age population in Canada and the United States is employed in the normally low-wage retail trade, restaurants, and accommodation sectors combined, compared to just one in ten in Sweden and Denmark (Scharpf and Schmidt, 2000, Data Appendix, Vol. I). High wages may squeeze private consumer services, but not necessarily at the cost of total employment, a finding that demands a re-evaluation of current government policies.
Conclusions and Lessons for Canadians
The experience of a few European countries, such as Denmark, Sweden, and the Netherlands, tells us it is possible to have high levels of high-quality employment, and there is no inevitable trade-off between job quantity and job quality. In the Scandinavian countries examined, a high wage floor and a very low incidence of low-paying and dead-end jobs have not precluded strong job growth, even in private services. Subsequently, it is the position of Canadian labour and anti-poverty groups that a similar wage floor in Canada is part of the answer to precarious work. This floor will be most effective when combined with public policies that raise the skills of workers and encourage employers to pursue high-skill strategies. Last, high levels of social services, financed from general taxes, can also make a positive contribution to highquality, post-industrial employment.
Canada is a diverse and rather individualistic society, but Canadians also take pride in having created a more inclusive society than in the United States. Many elements of the new European models, such as strong unions, a large social sector, and social partner involvement in policy making exist in Quebec and, to a lesser degree, in other provinces. Canada is highly integrated with the heavily deregulated United States labour market, but this does not make impossible political projects linked to values of equality, inclusion, and solidarity. Ultimately, the challenge is to show how elimination of precarious work will promote social inclusion and help build a more productive economy.
(The arguments of this paper are developed at much greater length in Andrew Jackson, Work and Labour in Canada: Critical Issues, forthcoming from Canadian Scholars’ Press in Spring, 2005.)
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