Introduction to Labor Studies II
Labor and Capital Relationships in the History of Canada
I. Theoretical Framework on Labor and Capital
With the hopes of representing the relationship between labor and capital in the production process, Cobb and Douglas (1928) used the function Y = ALBK1-B wherein, Y refers to the total production output, L refers to the total number of labor input, K refers to the capital input, and B and 1-B reflects the output elasticities of labor and capital as part of a whole. Supplanting the model set forth by Cobb and Douglas (1928), Creamer (1954) analyzed the trends in capital and labor productivity from 1880 to 1948. He found out that, similar to the assertions of Cobb and Douglas (1928), technological innovations have the tendency to replace the other factors of production by shifting the bulk of the inputs into capital rather than labor. Creamer (1954) noted that in the years wherein the number of man-hours per unit of output declined, there has been a continuous increase in terms of the amount of capital input for every man-hour worked. The capital inputs mentioned in the study of Creamer (1954) could include inputs on improving human capital, inputs on improving technology, and so on. Nonetheless, the research presented the possibility of a declining share of labor on the production process as inputs on capital increases. These declines could yield into varying consequences on the part of the workforce including possible issues on wage distribution biases, issues on working conditions and so on. The following discussions will look into the changes between capital and labor in the history of the Canadian economy.
II. Canadian Economic History
According to Ian Drummond (2006), the early economic structure of the region involved the dependence of the Aboriginal peoples of present-day Canada into agriculture, hunting, fishery, and gathering. While there was no direct evidence of the presence of a specialized merchant class, the Aboriginal peoples of Canada where highly involved on trade among their groups and, in the 16th century, with the British and French traders as well.
In order to take advantage of the trade of fisheries and fur in Canada, Europeans started to build settlements in the area including French and British businessmen. By 1959, the British was already able to control majority of the trade of fur from Montreal and has extended their interests into the fields of banking and finance. With the growth and development of new industries in Canada by the British, immigrants from Britain rapidly increased over time. The influx of immigrants into the region have spurred the development of other industries such as the trade of timber and agricultural goods, and services such as shoemaking and tailoring, together with the establishment of new settlements in the region. This resulted into the rapid industrialized and increased trade connectivity with parts of Europe and the Americas (Drummond, 2006). Given the huge role of Europe in the economic development of Canada, Easterbrook and Aitken (1988) noted that the economic history of Canada can be viewed as an extension of the increasing European influence and expansion into the region of North America and thus, it is highly wrongful to study Canada’s economy as isolated from Europe or North America. Furthermore, Easterbrook and Aitken argued that without aid of growing interest from Europe particularly of Great Britain, it is not possible for Canada to achieve such development separately.
III. Labor and Capital in Canadian Economic Development
Prior to 1875, the Province of Canada was aggressively undergoing a series of economic developments that transformed it from a raw product and subsistence producing region into an integrated metropolitan economy making it one of the economic powerhouses after 1867. According to Pentland (1950), the development of the region was highly attributed to the role of capital and labor inputs into the economy. However, he noted that, between the two, it was capital that usually sets the pacing of development. As stated by Sullivan (1837 in Pentland, 1950), the delay being met in the development of the Canadian economy was not due to the unmet demand for laborers but on the lack of capital. During this period, the region has an almost inexhaustible supply of laborers with the presence of Canadian skilled workers, American laborers and other immigrants capable of working in the region. On the other hand, in terms of the conditions of capital influx in Canada, Sullivan (1837 in Pentland, 1950) mentioned that,
“The profits of the great branches of Canadian trade, such as the fur trade, the timber trade, the shipping trade, and even the import trade, have been concentrated or become fixed capital in the Mother-country. The merchants who have accumulated fortunes here were partners in English or Scotch houses, who have generally returned home to enjoy the fruits of their labor” (p.459).
This translated into the notion that upon reaping the huge benefits of trade and investment from Canada, suppliers of capital into the region went back to Great Britain or their home nations and resolved to continue and rechannel their investment activities there. The redirection of investments from the region have resulted into lower capital streams which ushered in the lag in development that Sullivan mentioned previously. However, Pentland (1950) argued that this is not the only contributor of the influx reduction of investment activities in the region. Aside from this, the War of 1812-1814 have also impeded the production in Canada due to the intermittent debt accumulation leading into a weaker postwar economy. From an economic perspective, the lack of sufficient capital has the tendency to develop into other social problems such as an increased unemployment rate, lower wages, undesirable working conditions, among others.
The aforementioned economic assertions have been proven relevant throughout the labor history of Canada. The weak economic conditions having consequences on quality of the workplace have manifested in the country’s history. These include the calls for a shorter work week in 1872 has been done by Toronto’s print workers demanding a nine-hour daily work load instead of the ten or more hours daily work load prevalent during those periods (Canadian Labour Congress, n.d.). Another example was the Winnipeg general strike which was launched when soldiers returning after the war were met with high inflation and unemployment rates, a situation similar to Pentland’s (1950) aforementioned argument. Workers from various industries have demanded the government and businesses to set their wages at sufficient levels in order for the workers to be able to support and protect their families from the ever changing economic conditions. Though the event led into the violence coined as “Bloody Saturday”, the efforts of the workers in order to shield themselves from the consequences of labor and capital imbalances have led into the development and trust of the working class into the potency of forming workers’ unions.
IV. Unions in Canada
According to Bryson (2007), the focal goal of the formation and presence of trade unions is to assure the maintenance and improvement of the worker’s labor conditions including matters of compensation, work load among others and is usually done through the conduct of collective bargaining agreements between workers and employers. Freeman and Medoff (1984) noted that the strength of a union is oftentimes dependent on their bargaining strength, which is measured using the degree by which the workers can restrict the supply of labor into the employer, and the degree by which employers could permit above-market wages. The capability of labor unions to limit the supply of labor into the employer could be dependent on the number of workers represented by the union wherein a higher representation of the union reflects the higher control of the labor union on the workforce managed by the employers. However, the access of the employers to non-union labor could weaken the bargaining strength of the labor union. On the other hand, in terms of the degree by which employers could permit above-market wages, the decision has something to do with the revenue streams and income elasticities of the particular firm handling the employers. Whereas, the possibility of increasing more wages is more potent in firms with lower demand elasticity with which additional costs from union demands could be mitigated by placing additional costs to consumers.
In Canada, the study conducted by Palmer et al (2006) revealed that unions began in the 19th century as small local organizations and were often labelled as illegal in some parts of the region. With the absence of labor unions to protect and promote employee’s rights and welfare, the labor conditions of employees were oftentimes dependent on the employer’s measures to maximize capital which often left employees in dire labor conditions. In order to mitigate these conditions, workers often resolved into hostility in violence until such time when the power and efficacy of labor unions were recognized. Organizations and movements formed include the Nine-Hour Movement of 1872, the 1873 Canadian Labor Union, the Trades and Labor Congress of Canada in 1883, and the Knights of Labor (Palmer et al, 2006). The development of these organizations in Canada have been able to spark the striking of balance between labor and capital factors in the production process.
References
Bryson, A. (2007). The effect of trade unions on wages. Reflets et perspectives de la vie economique, 2. doi:10.3917/rpve.462.0033
Canadian Labour Congress. (n.d.). History of labour in Canada. Retrieved March 19, 2016, from http://canadianlabour.ca/why-unions/history-labour-canada#winniped
Cobb, C. W., & Douglas, P. H. (1928). A theory of production. American Economic Review, 18(1), 139-165. Retrieved from http://www.jstor.org/stable/1811556
Creamer, D. (1954). Relation between labor and capital per unit of output and capital per man-hour. In Capital and output trends in manufacturing industries 1880-1948 (pp. 70-75). National Bureau of Economic Research.
Drummond, I. M. (2006). Economic history. Retrieved March 19, 2016, from http://www.thecanadianencyclopedia.ca/en/article/economic-history/
Easterbrook, W. T., & Aitken, H. G. J. (1988). Canadian Economic History. University of Toronto Press. Retrieved from http://www.jstor.org/stable/10.3138/j.ctt1287zqv
Freeman, R.B., Medoff, J.L. (1984). What do unions do? New York: Basic Books.
Palmer, B.D., Frank, D., McCallum, T., Rouillard, J. (2006). Working-class history. Retrieved March 19, 2016, from http://www.thecanadianencyclopedia.ca/en/article/working-class-history/
Pentland, H. C. (1950). The role of capital in Canadian economic development before 1875. The Canadian Journal of Economics and Political Science, 16(4), 457-474. doi:10.2307/137856
Samuelson, P. A., & Nordhaus, W. D. (2010). Economics. Boston, MA: McGraw-Hill Irwin.
