OUR: Data Check: Stimulus, Not Wage Cuts, Needed as Recovery Slows

Published by OCUFA in Ontario University Report, 4:2 (3 September 2010):

Fears of a double-dip recession were sparked this week by a Statistics Canada report that Canada’s gross domestic product expanded from April through June by an annualized two per cent, compared to 5.8 per cent in the previous quarter. Growth in June was a torpid 0.2 per cent.

In the meantime, the Ontario government, citing its Budget deficit, is calling for fiscal austerity and seeking to cut real public sector wages. But consumer spending, which depends on pay cheques, was a key driver of what growth Canada had.

If the Ontario government is successful in cutting real wages for the more than one million public employees in Ontario, it will weaken the very consumer demand needed for a stronger economic recovery. It will also weaken Ontario’s social infrastructure, disrupt labour relations, and prevent the post-secondary education system from competing for the best minds in the world.

As labour economist Erin Weir writes in the blog, Progressive Economics, government stimulus spending is what offset the impact of the worst recession in decades. Government purchases and investment increased even more than consumer spending ($29 billion vs. $26 billion), he points out. “This contribution to the recovery was disproportionately large, given that government purchases and investment were only 38 per cent the size of consumer spending before the recession.

“The public sector is the most significant offsetting factor. Without stimulus, our economy would still be under water.”

Restraining public spending, including cutting the real wages of public sector workers, will undermine an already weakening recovery.

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