Over the past decade, private sector job growth in Ontario has lagged behind virtually every province, and Ontario's share of Canadian investment is now disproportionally low compared to its population share. In many ways, Ontario's economy has become a drag on the rest of the country.
While there's no one simple solution, a good place to start is by leveling government regulations that limit the choice of workers by favouring private-sector unions. Doing so would make Ontario more attractive for investment and help to encourage job growth.
Empirical evidence from around the world shows that jurisdictions with biased labour relations regulations suffer lower employment growth and investment. When laws tilt in favour of unions, they make it harder for workers to change jobs in search of better pay or work conditions, and they restrict the ability of employers to respond to consumers or market changes. Powerful unions can also discourage investment and job growth by increasing the cost of hiring workers and/or reducing the return on investment.
A new study published by the Fraser Institute finds that Ontario's labour relations laws are lacking the balance needed to create a flexible and well-functioning labour market. The study examines private sector labour relations laws in Canada and United States and finds that Ontario is at a clear disadvantage compared to nearby American states, particularly Michigan -- a next door neighbour and major competitor for manufacturing investment.
An important example of Ontario's biased labour relations laws is in the area of worker choice. In Ontario, joining a union and paying full dues can be made a condition for employment. That means if someone wants a particular job, they have no choice but to join a union and pay dues.
Mandatory union membership and dues is problematic for many reasons. First, it means that unions can be less responsive to their membership since members don't have the option to leave the union. Restricting worker choice also artificially strengthens unions which can manifest in higher rates of unionization. But when workers are given more choice, they more often choose not to join unions.
Another issue relates to how union dues are used. Unions often engage in political activities outside their primary role as contract negotiators for their members. Because mandatory dues can be used for activities unrelated to representing members, many Ontarians are forced to financially support political causes that they don't necessarily agree with.
A library worth of studies from the U.S. shows that restricting worker choice can hamper a jurisdiction's economic performance. This body of research focuses on the differences between Right-to-Work states, which ban mandatory dues, and non-Right-to-Work states, which do not. The evidence shows that Right-to-Work states enjoy increased economic growth, employment, and in-migration from other states.
An influential study published in the prestigious Journal of Political Economy is important for Ontario and its floundering manufacturing sector. The study found that manufacturing activity increases abruptly when crossing the border from a non-Right-to-Work state to a Right-to-Work state.
Importantly, Michigan, the traditional heartland for manufacturing unions, has recently become a Right-to-Work state. Nearby Indiana has too. Unless Ontario moves in a similar direction, the province will continue to be at a competitive disadvantage for attracting manufacturing investment. That could mean fewer jobs for Ontarians.
The past few years have been tough for many Ontarians who are struggling through the province's economic malaise. If Ontario wants to begin its resurrection, it could start by implementing balanced labour relations laws that provide workers choice.
*This piece was co-written by Hugh MacIntyre, Fraser Institute analyst.
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