The federal public servant strikes reminded Canadians that public-sector employees have a pretty good deal. On an apples-to apples comparison, their pay is higher on average than in the private sector. Their jobs are secure even in a recession. And they benefit from rich, inflation-indexed pensions. They may also get more vacation and paid-leave days compared to the private sector.

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Jack Mintz: Public-sector employment growth is badly distorting labour markets Back to video

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Now with work-at-home and a potential move to an eight-hour-a-day, four-day week, with no loss in pay, life seems pretty good in the public service. After all, taxpayers who have little clout when it’s not election time are put at the mercy of two monopolies — government and unions — whose costly collective bargaining agreements mean more taxes even if there’s no improvement in service delivery.

What has been less noted is that employment conditions for public-sector employees badly distort labour markets. In choosing where to work, people look at a job’s overall benefits, including job satisfaction. A public-sector job that provides a higher salary, more security, an indexed pension and fewer hours of work will look very good compared to a private-sector job with lower compensation. Of course, there are offsetting benefits to working in the private sector — a larger pool of opportunities to work in Canada or abroad, a more innovative environment and greater freedom for self-development in a less bureaucratic atmosphere that rewards success more generously. But as governments push up public-sector salaries and benefits, private-sector jobs become less appealing at the margin.

The data show that workers have been more than willing to join the fast-expanding public service. From April 2014 to April 2023, federal, provincial and municipal employment grew 22.3 per cent, private-sector employment only 11.4 per cent. Today, public-sector employment accounts for almost 20.9 per cent of all jobs in Canada, compared to 19.4 per cent in 2014. The private sector pays the bills, so that can only mean a higher tax burden on private-sector workers and businesses.

Public-sector jobs are clearly more secure. In the pandemic’s first two months, fully 22.5 per cent of private-sector employees lost their jobs — compared to only six per cent in the public sector. The same pattern held when the financial crisis hit in the fall of 2008: as private-sector employment fell by four per cent public-sector employment actually rose by 1.2 per cent (through July 2009). Layoffs are devastating for all families, but the risk of experiencing them is much greater for private-sector employees.

Public-sector workers are highly unionized. So it is not surprising they have succeeded in pushing up salaries and benefits faster than in the private sector. The average hourly wage and benefits for unionized workers (both private and public) is $35.44, which is nine per cent more than for non-unionized workers. But despite the potential for wage gains through bargaining, private-sector unionization fell from 21 per cent in 1997 to just 15 per cent in 2021, even as unionization grew from 74 to 77 per cent in the public sector.

If unions do achieve higher benefits, why has collective bargaining declined so much in the private sector? In part, it’s due to the shift from goods to services production. Unionization rates in the service sector (excluding health, education, social assistance and public administration) are just 15 per cent, a quarter the rate in the goods sector.

More importantly, private companies have much less ability to raise consumer prices to recover higher negotiated wage costs. If they do, both domestic and foreign competitors will take market share from them. Workers understand this. And paying dues and being subject to seniority rules may not be so appealing, especially to the young. In the public sector, where there is no competition to worry about, it may not matter so much.

When private unionized companies push up wages too much, private-sector employers may move production to other countries or, failing that, go bankrupt. The auto industry is a perfect example of the fallout from bargaining over the years between an oligopoly and union. To save auto production, governments have had to subsidize the industry, with the recent outrageous payment to Volkswagen of more than $4 million per direct job being only the latest example.

Even the tax system penalizes private employment. People whose income fluctuates year to year, as it often does in the private sector, pay more tax over a lifetime than people whose income is more stable, as it usually is in the public sector. How come? Under our progressive tax system, we pay more tax in the higher-income year than we save in tax in the lower-income year. We used to let people average their incomes over several years to avoid this tax penalty. But averaging was abandoned in 1988 on the ground that top marginal rates were being reduced so as to maintain tax competitiveness with the United States after the Reagan tax reform. But now that our top rates are back up to levels not seen since then, maybe it’s time to bring back averaging.

It’s not surprising that public-sector employment has been squeezing the private sector these past few years. But enough is enough. We need governments to focus more on encouraging private-sector employment and less on coddling their own workers.