Deflationary Wage Pressures Hit Canada; Attitudes and Wal-Mart, the 800-Pound Gorillas

A consortium of 30,000 union workers at Canadian food stores have gone on strike over company demands to reduce wages by as much as 25% and reduce pension benefits as well.

For their part, grocers want to remain competitive with Wal-Mart, the 800-pound retail gorilla. Who has the upper hand and why?

Please consider Ontario Loblaw workers approve strike mandate amid stalled contract talks.

Loblaw Co. workers in Ontario have overwhelmingly voted to give their union a strike mandate if Canada's largest grocery chain doesn't back down from concession demands that it says are necessary to remain competitive against its non-unionized rivals.

Over 97 per cent of members of the United Food and Commercial Workers union, which represents nearly 30,000 employees at stores under names such as Loblaws, Zehrs, Real Canadian Superstores and Fortinos, have voted in favour of a strike.

Loblaw says it must modify some of its existing agreements in order to stay competitive, as earnings have declined about five per cent from where they were five years ago.

Workers are frustrated over company proposals that would cut wages by up to 25 per cent, increase waiting times for benefits eligibility and reduce full-time jobs. Workers at those stores make between the minimum wage of $10.25 and $25 an hour, plus benefits.

But Loblaw says that it must increase efficiency to take on a growing number of non-unionized competitors, like U.S.-based retail giant Wal-Mart, which has been ramping up its focus on low-cost groceries.

"We are striving to reach an agreement that would enable the company to continue to meet the demands of today’s highly competitive retail landscape," Julija Hunter, the company's vice-president of public relations, said in an emailed statement.

"In many contracts we pay 10 per cent more than competitors and have 15 per cent less flexibility. That’s a real competitive disadvantage. That’s not sustainable," Hunter said.

Attitudes and the 800-Pound Deflationary Gorilla

Like it or not, and the unions and Wal-Mart haters won't, there is only one reasonable way of looking at this....

Loblaws, Zehrs, Real Canadian Superstores and Fortinos need to be competitive to stay in business. If they fail to stay in business, every job at everyone of those stores will be lost or reorganized in a bankruptcy process. Accrued pensions may blow up in smoke.

I do not know Canadian law, but assuming companies have the right to hire replacements in case of a strike, Loblaws can win this battle hands down as long as it has the will. A settlement might be possible, but only if there are huge union concessions.

In the US, public unions have not gotten the message that their bargaining power has peaked. Canadian unions do not have the message either. A rude awakening is in store for unions in both countries.

Blaming Wal-Mart is Futile

The key point to this story is that tremendous deflationary wage pressures on unions in the US have now appeared in Canada. Moreover, this is just the tip of the iceberg for what is to come.

Blaming Wal-Mart (or anyone) is as futile as blaming the moon. People shop at Wal-Mart for a reason: low prices. Those low prices benefit millions at the expense of (in this case) 30,000 workers at Loblaws.

Will shoppers pay higher prices to keep Lobaws employees overpaid? The only opinion that matters is the attitudes of shoppers, and clearly attitudes have spoken.

Attitudes are Like Pendulums

There is no turning back until the secular shift in frugality hits it peak, and that peak might be a decade away.

It does not matter what public or private unions think, or for that matter what the Fed and Bernanke think! Attitudes have changed and shoppers insistent upon lower prices have decided. Lower wages will follow. Attitudes rule. Deflation it is.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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