Statistics Canada released its April 2022 employment numbers today and the national unemployment rate edged down slightly to 5.2 percent. Canada has low unemployment and real GDP growth in the 4th quarter of 2021 was 1.6 percent which annualized translates into just over 6 percent real growth for 2021. It is indeed a period of robust economic growth and of course inflation which in March was 6.7 percent. However, if you have been to a grocery store, you will see that over the course of the last year many prices have gone up 30-50 percent and then there is gasoline which is now pretty much at 2 dollars a litre. As a result, interest rates are up belatedly to arrest the surge in inflation to bring it back to the 2 percent range. However, they will probably need to go higher given that inflation – while not yet stagflation despite alarmist media stories – is nevertheless quite persistent. Still, Canada is not yet like Turkey which is seeing 70 percent inflation.
Stagflation a la 1970s requires a wage price spiral fueled by expectations of rising prices on the part of the labour force which become translated into effective wage increases. However, that requires a certain amount of bargaining power on the part of labour and unionization rates in Canada today are dramatically lower than they were in the 1970s and 1980s. If wages go up in the private sector, they are going to rise not so much because of labour action but because the labour market is seeing scarcity of workers. As for the public sector, many provinces have some form of salary restraint – chief of which is Ontario which in 2019 brought in Bill C-124 which has kept most of the broader public sector to 1 percent annually. More on that in a minute.
In Thunder Bay, the unemployment rate (3-month average, seasonally adjusted) is now 4 percent – down from 4.9 percent the month before. However, total employment in Thunder Bay is down from March going from 64,600 to 64,400 jobs, the size of the labour force has also shrunk going from 68,000 to 67,200 and the participation rate has fallen from 63.8 percent to 63.0 percent. So, the robust low unemployment rate in Thunder Bay masks the fact that overall, there are fewer people working relative to the month before. However, year over year, both the labour force and employment are up so all things considered, the low unemployment rate is a sign that the city’s economy is doing relatively well. Which brings me to the main point.
As well as Thunder Bay is doing, eyebrows were indeed raised this week by the news that Thunder Bay City councilors have passed a 4 percent salary increase for its management and non-unionized staff and a 2.35 percent increase for councillors while unionized staff will be seeing a 1.5 to 2 percent increase. The 4 percent increase for 319 managers and other non-unionized staff was dressed up as staggered which obfuscated from the fact that in 2022 the increase is nevertheless 4 percent. The City Manager was quoted as saying: “The reason for [the increase] is to make the [city] more competitive against our competitors for skilled labour,” he said. “We are falling behind on a relative basis – against other municipalities, against the private sector, and against the public sector parameters we measure against.” As for the councilor increase, well it is now formula driven at half the rate of inflation so the 4.7 percent inflation in 2021 translates into 2.35 percent. It is not council deciding, it is simply the formula though they voted against taking a lower increase.
The point here is that municipal employees in Thunder Bay – like municipal employees elsewhere in the province - have a distinct advantage over other members of the broader public sector in that they have not been subject to the provincial salary restraint legislation in Bill C124. In Ontario, health and education sector workers have been kept to 1 percent increases annually since 2019. Municipalities have been exempted ostensibly because they have access to own-source revenues. That is property taxes and user fees. Municipalities still get a substantial portion of their revenues from the province in the form of grants though not as large a share as say hospitals, schools, and universities.
Municipalities in Ontario derive about 40 percent of their revenues from property taxes, another 22 percent from government transfers, 20 percent from user fees and the remainder from licenses, permits, fines, and rentals. They can pass on their cost increases directly to their ratepayers and as a result can fund increases in spending while at the same time adding to their reserve funds with large annual budget surpluses. In the end, they are no longer municipal governments serving the public interest but have become monopoly corporations and use their monopoly power to extract whatever revenues they need – even during the pandemic. They have become bureaucratic maximizers of expenditures. A municipal election only every four years enhances that monopoly power. Residential taxpayers throughout Ontario are going to see large increases in their bills down the road to fuel the spending increases that municipalities are going to bring in because of inflation. That the province has allowed this monopoly power to continue unchecked and indeed abetted it in the recent salary restraint legislation should be an election issue.
