OCTOBER 21, 2010
This post will ruffle feathers, but it's not my intention. I don't mind speaking the unpopular messages when I have to. Let me start by saying that I am a public sector employee. I have nothing against the public sector and those who work in it (how could I since I am one of them...). I think the vast majority of public sector workers are hard working and provide valuable services to the people of this country. But as a collective, the public sector needs to get its head out of the clouds and see what's coming.
In the aftermath of the credit crisis in 2008, private sector wages declined while public sector wages held steady. Most people erroneously believe that being employed in the public sector will somehow shield them from the same wage pressures exerted on the private sector. That's ridiculous! As I've said before, any increase in the wage and/or benefits in the public sector that outstrips the gains in the private sector amounts to the private sector being asked to take a reduction in their standard of living to enhance the standard of living of those living off government dollars. Since the private sector pays our wages, if their salaries go down and ours don't, we've just robbed them.
Most estimates place the wage and benefit premium enjoyed by the public sector at 40% over comparable jobs in the private sector. When we're in boom times, no one seems to care. But what happens if I'm right and the coming slowdown in residential real estate will have far-reaching impacts on employment and economic growth? The pay increases and generous benefits that the public sector is used to receiving will not be in the cards. What then?
I suppose you can look no further than Greece, France, and Britain for that answer. While perhaps not perfectly analogous, these tensions highlight what happens when the government tries to take away something that people perceive as their right. With such a long history of generous pay increases and over-generous benefit packages, you can expect that any attempt to try to bring these back in line with private sector reality will be met with swift retaliation.
This is the reality of trying to balance public sector spending with falling private sector revenues and an attempt to restore fiscal integrity to a nation.
You see, after the crisis in 2008, governments blew the wad trying to stimulate their rapidly slumping economies. It was the greatest peace-time deficit spending the world has ever seen. And now it must be repaid.
Just this week, Britain announced deep budget cuts in an attempt to restore balance. Half a million public sector jobs will be slashed. As Prime Minister Cameron noted, public sector job losses are unavoidable when a country runs out of money. Go figure.
So what about us? We have the dual problems of a coming economic slowdown and increased pressure for austerity measures. This week, the Parliamentary Budget Office has suggested that the conservative government needs a tougher deficit cutting plan. Look out federal employees.
This week we also learned that the federal government plans to cut federal transfers to the provinces. As the Globe noted:
"The Harper government is signalling that it intends to scale back the growth rate of federal transfers to the provinces – a warning that means tough decisions lie ahead on health care, education and social programs as Canada moves to balance the books."
If that's not bad enough, the provinces already have their own fiscal issues. With such massive debt loads themselves, the risk that bond holders may begin demanding a premium for provincial government debt looms large. The Globe also ran a great piece along these lines earlier this week:
"The provinces’ fiscal health is tethered to forces largely beyond their control (interest rates by bond holders). The kinds of struggles faced by Greece, Spain, Ireland and others could quickly cross the Atlantic, forcing some provinces to make tough and painful fiscal choices – cut teacher salaries, close schools, fire nurses, or hike taxes to pay for it all.
What the unions need to realize is that in the economic climate to come, they will quickly create the political atmosphere that will ensure their own demise. To alienate a financially hurting public by staunchly demanding more would set the stage for a Chris Christie or Mike Harris type to come in and really clean house. Public sector unions had best tread lightly and use common sense over the next few years.