I’ve mentioned before that a theme I emphasize in my workplace law courses is that students should question everything they read in the papers about labour policy, particularly when they purport to rely on economic studies. I can find an “economic” study to support or refute almost any labour policy I can think of. That is not to say economics is not useful to labour policy issues. The point is that economic studies need to be dissected carefully and read critically to identify underlying assumptions and values.
I was reminded of the theme of Question Everything this weekend when I read a laughable little piece in the National Post that mocked the recent annual report of the Canadian Centre for Policy Alternatives tracking CEO pay and growing economic inequality in Canada. Predictably, the Post mocked the CCPA as a “socialist”, left wing lobby group not worthy of reference in serious newspapers… unlike, say, the Fraser Institute or the Heritage Foundation (conservative, right wing lobby groups) which the Post drags out as reliable newsworthy sources almost daily. Truth is, all of these organizations are lobby groups pushing a policy agenda, so I tell my students to read the reports coming from these organizations with a critical eye, just as they should any economic “report” or “study”.
Here’s a point for the Question Everything file. The Post columnist was arguing that there is no problem with skyrocketing CEO salaries and that the CCPA should just stop whining. The Post cited the following stats from the CCPA report:
The CCPA calculates that the 100 best-paid executives made 155 times the wage of an “average” Canadian. That’s up from 104 times in 1998. CEOs averaged $6.6-million in pay last year…
The CCPA’s point is that more of Canada’s wealth is going to these super-rich CEOs, but the middle class is declining rapidly. The CCPA argues this is a bad thing. The Post columnist apparently isn’t very concerned about income inequality or rising CEO pay. But my point is more specific. Look at the Post’s explanation of why it doesn’t matter that more and more money is being paid to the superrich CEOs:
The money doesn’t come from your pocket or mine. It’s not siphoned away from the homeless, the needy or the hungry. Any savings not paid to the CEO would presumably be available for increased dividends to investors…
You follow that. When a CEO (i.e. one employee of a company) gets a huge raise, say from, I don’t know, $4 million to $12 million, that raise has no negative impact on the economy, or on you and me; only “shareholders” suffer in the form of lower dividends. In other words, large increases in labour costs are nothing to worry about, it has no negative impact on the labour market.
That’s interesting, because I’m sure I’ve read the National Post and its favoured “think tanks” lobbying incessantly for years against wage increases for workers at the other end of the spectrum. Ask the Post or the Fraser Institute about raising the minimum wage a few cents, for example. Let’s see, how about this article, also from last week’s Post. Here we are told that raising the wage of the lowest paid workers in a company (those making the minimum wage) even a few cents per hour will wreak all sorts of hell on the economy, causing layoffs and overworked employees. In this Post piece, we are told that a raise in the wages of restaurant servers will destroy the restaurant industry. Oh heavens, I like restaurants. 🙁
Of course, raises given to unionized workers are ALWAYS bad for society and the economy, regardless of whether the workers are public sector or private sector workers, according to the Post. For example, the Post has told us that high wages paid to public sector workers have “significant (negative) impacts on economic growth”, and that high auto worker wages were to blame for the crash of the North American auto industry (not high executive salaries at the automakers, though) In other articles, we learn that wage increases of lower level employees also lead to increases in costs of goods, because employers pass on wage increases to consumers in the form of higher prices. Raises to ordinary working people are a horrific thing for the economy, according to the Post. Yet, oddly, the only negative impact of huge raises given to CEOs is that “dividends for shareholders” may go down somewhat.
So here’s today’s exam question for you economics and labour law students out there:
Company X, Y, and Z are identical in every respect.
Labour costs at Company X increase by $5 million one year. This is due to a raise in the CEO’s pay of that much.
Labour costs at Company Y increase by $5 million that same year. This increase is due to a raise in the minimum wage.
Labour costs at Company Z also increase by $5 million. This increase reflects a raise bargained by a union in collective bargaining.
Explain in a National Post guest column why the labour cost increase at Company X has no negative impact on the economy, while the labour cost increase at Company Y and Z will cause layoffs, inflation, higher consumer prices, increases in welfare, mass depression, brown grass, floods, locus infestation, your mother-in-laws’ migraine, and the downfall of modern society?