Governments should cut red tape to spur COVID recovery, achieve four-day workweek

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Appeared in the Ottawa Sun, March 3, 2021
Governments should cut red tape to spur COVID recovery, achieve four-day workweek

According to a recent survey by the Angus Reid Institute, a majority of Canadians (perhaps not surprisingly) believe a 30-hour workweek is a good idea. However, to achieve this goal without a commensurate reduction in compensation for Canadian workers requires significant growth in what economists call “labour productivity.”

Indeed, employers in competitive industries could only afford to maintain current compensation levels (wages, salaries) for workers—while offering their employees substantially more time off—if the value of output produced by the average worker increased to offset the reduction in work hours.

Specifically, if labour productivity growth in Canada averaged 2 per cent per year from 2018 to 2030, Canadian workers in 2030 could work a four-day workweek year-round while also enjoying a higher standard of living than in 2018. However, given that labour productivity growth in Canada has averaged only around 1 per cent per year in recent years, the required increase in productivity growth seems daunting.

But there’s hope. Canada’s business sector averaged a labour productivity growth rate of around 2 per cent per year from 1961 to 2012. Restoring that 2 per cent annual growth rate will require policymakers and corporate managers to improve efficiency.

The vast majority of Canadians work in small- and medium-sized businesses (SMEs). Naturally, increasing labour productivity growth in SMEs would go a long way in achieving a four-day work week. There are many initiatives that can potentially improve labour productivity growth in SMEs including a systematic effort by government to cut regulatory red tape. When forced to comply with undue regulations, SMEs must divert money and time away from productivity-enhancing initiatives such as investing in new machinery and equipment and upgrading employee skills.

To be sure, some regulations aim to achieve worthwhile objectives including carbon emission reduction and food and pharmaceutical safety. However, many regulations are “non-functional”—that is, they fail to promote worthy social objectives or, when they do, create costs for the economy that are greater than the social benefits. In a recent Fraser Institute study, researcher Laura Jones reports the results of a survey conducted by the Canadian Federation of Independent Business whose members are mostly SMEs. Fully 63 per cent of respondents reported that excessive regulations discourage them from growing their businesses while 68 per cent indicated that excessive regulations significantly reduce the productivity of their businesses.

The survey respondents also estimated that roughly 30 per cent of costs they incur to meet regulatory obligations do not contribute to improving health, safety or environmental outcomes of their business activities. Eliminating this sort of red tape would collectively save SMEs roughly $10 billion a year, which could be used to improve the productivity of their businesses. Clearly, fewer resources dedicated to complying with excessive regulation would free up substantial amounts of time and money, which SMEs could use for capital investments, innovation and worker training.

Given the grievous harm COVID-19 has inflicted on Canada’s private sector, pruning red tape should be at or near the top of any government’s agenda to restore Canada’s economic health, especially as many businesses must invest in new lines of business—or brand new ways of doing business—in response to the profound economic and social changes spurred by the pandemic.

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