Salary Provisions of the New Contract Demystified – Part Two

By Robert Green

Part one of this article discussed the core guaranteed salary increases in the current collective agreement. Now comes the fun part: explaining the rather convoluted formula for potential additional increases and what this all means in the big picture.

In addition to the guaranteed 6 percent over five years the agreement also contains several additional increases triggered by growth in Quebec’s nominal Gross Domestic Product (GDP).

What the heck is ‘nominal’ GDP?

The GDP is the basic measure of economic growth. There are two ways economists look at the GDP. ‘Real’ GDP presents a picture of economic growth adjusted for the effects of inflation. As inflation changes from year to year this allows economists to compare one year’s economic growth with another. This is the most commonly referred to measure of economic growth. ‘Nominal’ GDP on the other hand is a measure of economic growth that includes the effects of inflation (on all goods not simply those used to determine the Consumer Price Index). Therefore nominal GDP can be understood as a composite of real GDP plus inflation.

Beginning in April 2012 the contract provides for three possible additional annual salary increases of 0.5 percent, 1.5 percent, and 1.5 percent. These increases are triggered if growth in the nominal GDP averages about 4.25 percent over the course of the contract. Therefore:

  • If nominal GDP growth averages 4.15 percent in the first two years of the contract, this will trigger the 0.5 percent increase in April 2012.
  • If nominal GDP averages 4.25 percent in the first three years of the contract, this will trigger an additional 1.5 percent increase in April 2013.
  • If nominal GDP averages 4.25 percent in the first four years of the contract this will trigger an additional 1.5 percent increase in April 2014.

Should all of these raises be triggered teachers would see a 9.5 percent increase over the duration of the contract.

Are the additional increases likely to occur?

Given that nominal GDP is comprised of both real economic growth and inflation, it is the interplay of these two factors that will determine whether or not the increases will be triggered. Any combination of real economic growth and inflation that adds up to an average annual growth rate of more than 4.25 percent will trigger salary increases.

Although it is still quite early to know for sure, thus far the possibility of these increases being triggered looks good. According to both Statistics Canada and the Institut de la statistique du Quebec, Quebec’s nominal GDP rose in 2010 by 4.75 percent well above the 4.15 percent required to trigger the first increase.

Looking forward, real economic growth is forecast for 1.7 percent in 2011 and 2.1 percent in 2012. Should those forecasts be accurate, this would mean an inflation rate of at 2.55 percent and 2.15 percent respectively would be needed to trigger the increases. Although these are very uncertain economic times, given that inflation in Quebec has recently been well over 3 percent this certainly seems within the realm of possibility.

If the additional increases are triggered does this become a good deal for teachers?

Before answering this question, there is an even more fundamental question: what constitutes a good deal for teachers? In light of the consistently declining real wages of public sector employees discussed in part one of this article, the answer to this question is clear: a good deal for teachers is one that increases or at least maintains their real wages. On the other hand, a good deal for government (according to its short-sighted neoliberal logic) is one where it continues to reduce the real wages of teachers.

The question of how beneficial these increases might be for teachers is entirely dependent on inflation. Table 2 below illustrates the effects of various rates of inflation on teachers’ real salaries presuming the maximum possible salary increases are triggered each year.

Table 2: Affects of inflation on teacher salaries if all increases are triggered
Inflation Rate

1%

1.5%

2%

2.5%

3%

3.5%

April 2010: 0.5% maximum increase

-0.5%

-1%

-1.5%

-2%

-2.5%

-3%

April 2011: 0.75% maximum increase

-0.25%

-0.75%

-1.25%

-1.75%

-2.25%

-2.75%

April 2012: 1.5% maximum increase

+0.5%

0%

-0.5%

-1%

-1.5%

-2%

April 2013: 3.25% maximum increase

+2.25%

+1.75%

+1.25%

+0.75%

+0.25%

-0.25%

April 2014: 3.5% maximum increase

+2.5%

+2%

+1.5%

+1

+0.5%

0

Average annual effect on real wages

+0.9%

+0.4%

-0.5%

-3%

-5.5%

-8%

Here we see that the only way teachers come out ahead is if inflation remains unusually low while maintaining real GDP growth rates of 2.75 percent to 3.25 percent (needed to achieve the 4.25 percent average annual growth in nominal GDP). Given that economic growth tends to trigger rising inflation such a scenario is highly unlikely. Notice that as inflation rate climbs above 2 percent, the result is a dramatic reduction in real wages.

Another reason that such a scenario is highly unlikely is that Statistics Canada’s most recent inflation figures show that between October 2010 and October 2011 inflation in Quebec averaged 3.3 percent, driven largely by the increasing costs of food and gasoline. Given that the rise in prices for these commodities shows no sign of slowing, it would seem likely that relatively high inflation could persist, regardless of whether or not we see further stagnation in the real economy. Were inflation to continue at this pace for the duration of the contract, teachers would see their real wages eroded by 7 percent over this period.

What all this means is that unless we see a sustained period of higher-than-forecast economic growth along with much lower-than-forecast inflation it is likely that even if all of the salary increases are triggered teachers will continue to lose ground in terms of real wages over the course of this contract.

By pegging these increases to nominal GDP growth the government is protected because the only scenario in which it would have to actually increase the real wages of public sector workers is one in which economic growth and hence government revenues are higher than expected. Public sector workers on the other hand are left exposed to the effects of inflation. If it was public sector workers rather than government whose interests were protected, such salary increases would be linked exclusively to the Consumer Price Index rather than nominal GDP.

One percent after-the-fact damage control

The agreement also contains a provision which can best be understood as a kind of after-the-fact damage control. At the expiration of the agreement in March 2015, if cumulative inflation has outpaced the various salary adjustments, a further adjustment of “up to” 1 percent will be applied (QPAT’s document doesn’t explain what they mean by ‘up to’). However, this adjustment is not retroactive so it does not in fact address the real wages lost over the course of the contract. Instead it puts teachers on slightly better ground going into the next round of negotiations. This provision does not change the fact that the maximum possible increase over the course of the contract is 9.5 percent or 1.9 percent annually.

Still the lowest paid teachers in Canada

Over the summer the BC Teachers Federation released a comparison of teacher salaries across Canada. Even though the analysis is based on salary figures from the new collective agreement, Quebec teachers rank dead last in 3 of the 4 comparisons of teacher salaries across Canada. While it is true that the cost of living in Quebec is lower than many places in Canada, the comparative gap in salary far exceeds the gap in cost of living. For example, it is estimated that the cost of living in Ottawa is 10 percent higher than in Montreal, yet in the 4 comparisons presented by the BCTF Ottawa high school teachers earn on average 29 percent more than Quebec teachers. This gap is particularly pronounced for teachers at the beginning of their career. Quebec teachers begin their careers earning 33.7 percent less than high school teachers in Ottawa. A Quebec teacher starting at the bottom of the salary scale has to teach about 10 years in order to make as much as a first year teacher in Ottawa.

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