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Public Sector Strikes Need Competition

June 20, 2014 in Economics

By David Howden

It’s not often police officers and firefighters light fires in the streets (in front of City Hall no less). That’s exactly what happened in Montreal recently, as public union members protested the Quebec government’s intent to reform their municipal pension plans.

The province’s Municipal Affairs Minister Pierre Moreau estimated that these public pensions are currently running a deficit of almost $4 billion.

Part of the shortfall is caused by mismanagement and part by an inability of the government to come to grips with the reality of pension demographics. Retirees are living longer and investment returns are not what they used to be given the current low-interest rate environment. But many municipal workers start working later in life (like police officers and firefighters who go through lengthy training regimes) and retire earlier than private sector workers. The result is few years spent contributing to an already generous pension plan.

To put pressure on the provincial government to not make reforms, 80 firefighters quit on the spot, closing two Montreal fire stations. (This was, one can presume, especially troublesome as this group also had a hand in lighting the street on fire in front of City Hall.)

When private sector pensions are managed incorrectly, the pensioner pays. When returns are less than expected, as they are now, contributors make up the difference. Defined benefit plans, such as Quebec’s public sector enjoys, are almost unheard off any longer. The advantage of knowing in advance what your pension will pay is from a bygone era. Market forces dictate returns, and private pension holders on defined contribution plans get what the market returns on their retirement. There is no reliance on the taxpayer to make up the shortfalls.

Reform of these municipal pensions is not only necessary, it’s fair. One reason reform won’t come is evident in the recent protest.

There is only one group of fire fighters in Montreal. When they go on strike, there is no replacement. The same holds for police, school teachers, and many other public monopolies. When these 80 fire fighters went on strike the citizens of Montreal had no options. It became not a matter of pension reform, but of life and death if someone had a fire!

In contrast, when your local hardware store has pension problems and goes on strike, consumers still have options. Nuts and bolts can be bought from a competitor.

Competition is missing from discussions about pension reform. With no …read more


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