Industrial Relations-Lecture 3 Social, Economic & Political Environments

Economic Factors
-Micro level
o Since 2008, Canadian economy sank in a deep recession
o Slow growth in the economy and high unemployment
o In 2009, there was a government action plan to stimulate the
economy
o Expanded housing constructions
o Retrain Canadians
o Improve access to financing (corporate & personal)
o Low interest rates (as a result there is huge debt levels)
-Macroeconomic policy
o De-regulation
o A policy designed to create more competition in an
industry by allowing prices to be determined by market
forces
o Privatization
o Transfer/contract of services to the private sector-sell
government businesses)
o Massive trade agreements (CETA, South Korea Trade deal)
o So Canada is not heavily dependent upon the US
o Increased Globalization
o Resulted in greater mobility of capital and increases in the
flow of goods and services
o Fewer high wage union jobs, because most of the
traditional jobs have moved off-shore
o Gradual shift from manufacturing to the service sector
o Implications would be the need for more business
flexibility. To respond to change quickly
o More educated/highly trained employees. We are in the era
of the knowledge workers
The Labour Market
o The market equilibrium would be when the demand of labour is
equal to the supply of labour. This is unrealistic; there are always
unemployed individuals.
o As demand increases, wages should increase

Elasticity of Demand and Supply

o Wage Elasticity: the degree of employment responsiveness in
response to an increase in wages
o Elasticity of Supply
o The labour responsiveness of supply (demand) caused by a
change in the wage rate-if the supply for labour is really
elastic then a small increase in wages will significantly
increase the supply of labour
o Elasticity of demand
o When a relatively small increase in the quantity demanded
will cause a relatively large increase in wages. (% Change
in employment / % change in wages). The degree to which
an increase in wage rates impacts the demand for labour
Nominal
o
o
o

wage increase (Real wage increase)

Say you get a 10% increase
Real wage increase (takes into account inflation/cost of living)
Must look at inflation. If inflation is 9%, then your real wage
increase is 1%

Marshalls Conditions (4 conditions which affect the degree of demand

for labour)
1. Product market in which the firm operates
a. The more competitive the product market, the greater
the employment impact of a wage increase
b. Employers in a highly competitive market are more
sensitive to wage increases
c. Unions- have less power in a competitive market
2. Substitution effect
a. The easier it is to substitute capital (technology) for
labour the less power the union has to raise wages,
therefore the more elastic the firms demand for labour
3. Labour intensity
a. The degree to which labour costs account for production
costs
b. Output (Outputs/Inputs)

c. Firms in a labour intensive industry (service industry)

will be more affected by wage rate increases therefore
we will have an elastic demand for labour
4. Market substitutes
a. The more competitive the market for substitute factors
of production, the greater the firms bargaining power
Summary:
o Demand is more inelastic and unions will have more power when:
o Their product markets are less competitive
o Its harder to substitute capital for labour
o Labour costs are a small percentage of production costs
o The market for substitute factors of production is less
competitive
Work Leisure decisions
o Substitution effect: a wage increase will cause someone to
substitute more work instead of leisure
o Income effect: with a higher income they would work less, buy
more leisure
Labour mobility
o Depends upon
o Language
o Family?
o City vs. rural
Institutional barriers to employment
o Lack of training e.g. Skilled trades
o Occupational licensing (what we do to restrict the supply of
labour) e.g. doctors
o Unions: restrict labour supply through restriction to
apprenticeships
o Flattening of organizational structure (where there is a need for
fewer people)
Social Factors
o Public attitude
o Key reasons for union decline (globalization, the changing
nature of the work environment, improved employment
legislation and social attitudes)
o Work attitudes
o 1996-positive support for unions
o Today- younger generation is no so interested
o Trends in income distribution:

o The replacement of high union paid jobs with low wage

service sector will create income disparity (between the
rich & poor) * at the end of the day what we need to do is
re-train and educate ourselves. Go back to school and
increase our knowledge and skills*
Changing workforce composition
o 1970-moslty male
o 2000- women, minorities and precarious workers
o Today- 1/3 full time, more women, younger workers
o The challenge for unions is, it is harder to organize the
contingent workforce. Harder to establish a bargaining
community
Video-Generation Jobless
o Higher education is preparing people for the jobs of the past
o Youth underemployment has doubled
o Canada has one of the highest underemployed graduates
o Education inflation- everyone has some form of education. The
degree is worth less
o Workplace fixed on globalization and automation
o 2030-half of the jobs in the world will transition (cars that drive
themselves therefore no more taxi drivers, truck drivers etc.)
o Graduates tend to get temporary/part-time jobs. This is now
becoming a norm
o Becoming a much more project based society
o Now competing with someone 40yrs older than you
o University of Regina- guarantees graduates to find a job. If not
they can come back for another year for free
o Have a great CO-OP program
o High youth employment
o Baby boomers not leaving
o Willing to work for free (interns)
o Mismatch between education policy and economic reality
o Globalization and technology
o Economic recession/ less demand
o Lack of the right kind of education/skills (need skills trade)
o Lack of knowledge of the economy/job market/labour
market info
o Lack of a sound government policy in terms of regulating
the labour market
o Problem in Canada- no central governing policy

How these various groups are affected

Org
o Move away from permanent full time work
o Employers facing a loose labour market, can afford to keep
wages down
o Poor morale
Employee
o Waste of human capital
o High opportunity cost of education
o Opportunity cost- cost of doing one thing over another,
what they are giving up
Unions
o Unionized employees are ok
o Capitalize on dissatisfaction and try and get more people
o Going to be harder for unions to organize because of the decline
in full time employment
Market substitute-the more substitutable the employee the more
power the employer has