By Howard Levitt

Ottawa is using the private sector’s tax dollars to choke off its growth — right under its nose

One day late last year, Justin Trudeau took to twitter to tout his government’s job creation record.

“Thanks to your hard work and the hard work of Canadians across the country, Canada’s unemployment rate is the lowest it’s been since the start of the pandemic. In fact, more than 154,000 jobs were created last month — and … in the COVID-19 Era, more than 1 million jobs have been recovered,” he wrote in a tweet.

Gratifying on its face. But entirely misleading about the damage which Ottawa and other levels of government have done to employment growth and the economy, using the private sector’s tax dollars to choke off its growth — right under its nose.

My employer clients, almost unanimously, are desperate to hire new employees. The pool of available workers is at a 50-year low. One of the most significant obstacles to economic recovery and growth is the labour shortage, preventing companies from capitalizing on the business opportunities presented to them. We see it in restaurants and other industries that cannot open to capacity or must reduce their hours or days of operation because of the lack of available staff.

And now we know the reason. It is not that a white-hot economy has absorbed all available labour as most of us presumed. It is that government has been competing with the private sector for that labour, paying wages and benefits so high that the private sector cannot compete with it.

What is the evidence for this?

The Fraser Institute recently published a report with sobering implications. Private sector employment (including self-employment) in Canada increased between February 2020 and July 2022 by a negligible 56,100 jobs, essentially a flat increase of 0.4 per cent. By contrast, job creation in the public sector rose by 366,800 jobs, an increase of 9.4 per cent. The government sector was responsible for an astonishing 86.7 per cent of all Canadian job creation in that period.

Once the figures are adjusted for population growth over this period (2.7 per cent for individuals over the age of 15), private sector job growth is even worse. The share of adults employed in the private sector actually fell.

As Gwyn Morgan wrote recently in these pages, public sector workers not only kept their jobs but added two-years’ credit to their pension benefits and many even saw their wages grow during the pandemic. With January Statistics Canada figures showing public sector employment up 305,000 jobs from the beginning of the pandemic and all 206,000 job losses that month coming from the private sector, Morgan rightly concluded that “Two classes of Canadians have been created: those without job security or income worries and those whose ability to support themselves and their families depends on creating value for the enterprises that employ them.”

Another Fraser Institute report found that average public sector wages were more than nine per cent higher than those of their private sector counterparts at the outset of the pandemic. On top of wages and comprehensive benefits, 88 per cent of government workers were covered by a pension plan, compared to fewer than 23 per cent of private-sector workers and a higher percentage of those public sector pension plans are richer, recession-proof, defined-benefit plans. Exacerbating the inequality, the public sector is more immune to layoffs because of weak-kneed governments fearful of having strikes on their watch. The irony is that lower-paid private sector workers are paying for the higher wages and benefits of their public-sector counterparts.

What a contrast with much of the rest of the world. When Greece was forced by its economic plight to cut expenditures, it did not increase its public labour force. Instead, it dramatically reduced government workers through digitization so that more work was done by far fewer civil servants. Why don’t we do that?

Instead, Canada is doing the reverse and we are all paying for that strategic error. And no one benefits other than (generally) overpaid civil servants and the governments looking for votes. An interesting shell game which plays havoc with our economic fortune.