Last year, Saskatchewan embarked on a bold plan to make its business taxes more competitive and improve its investment climate. And what a difference it has made. In a report released earlier this week, Saskatchewan ranked third among all provinces on creating and maintaining a positive investment climate; only Alberta and British Columbia ranked higher.

However, the difference in scores between third place Saskatchewan (5.3 out of 10) and Alberta (8.9) and British Columbia (6.0) is substantial. The reality for Saskatchewan is that while significant and positive strides have been made, the task of improving its investment climate is not complete. The next challenge for Saskatchewan is reforming its labour laws.

One of the most significant impediments to increased business investment in Saskatchewan is the province’s biased labour relations laws. Indeed, in the labour market regulation component of the Canadian Investment Climate Report, Saskatchewan ranked last among all provinces with a score of 1.8 out of 10. Comparatively, neighbouring Alberta received a score of 6.0 out of 10 on the labour market component.

Labour laws that favour one group at the expense of another or that are overly prescriptive reduce the level of flexibility in the labour market. Flexibility is critical to potential investors as it ensures that wages and the mix of labour and capital can be allowed to adjust to changes in market conditions.

A large and growing body of scholarly research has shown that flexible labour markets out-perform regulated ones in terms of business investment, incomes, job creation, and unemployment. For example, a 2004 study published in the prestigious Quarterly Journal of Economics concluded that “heavier regulation of labour is associated with lower labour force participation and higher unemployment.”

More importantly for the purposes of investment climates, is the recent work by professors Besley and Burgess that examined labour relations laws and found that labour relations laws favouring one group (either workers, employers, or unions) over another led to reduced levels of investment.

Examples of Saskatchewan’s biased labour laws are plentiful. One critical example pertains to the process through which unions gain and lose the right to represent workers, otherwise known as certification and decertification. The province is one of the few jurisdictions in North America that does not require a secret ballot vote for employees to become unionized. Both Alberta and British Columbia require secret ballot votes.

Further, Saskatchewan maintains a huge disparity between thresholds for certification and decertification applications. Specifically, support from only 25 per cent of workers is needed in order to apply for certification, whereas “50 per cent plus one” is needed to apply for decertification.

Once firms become unionized in Saskatchewan, the laws are also biased in favour of unions. For example, an employer is required to notify unions when it plans to introduce new equipment or machinery that might affect the collective agreement or employment. Alberta has no such provisions.

When labour disputes arise, unions again hold the balance of power. Saskatchewan allows unions to picket second-sites such as the operations of suppliers to, and retailers of, the firm engaged in the dispute. This may force a company to give in to unreasonable union demands as pressure mounts from its suppliers and retailers. Again, neither British Columbia nor Alberta allows third-party picketing.

Further, unions and employers are forced immediately into binding arbitration when they disagree over the meaning or application of a collective agreement. Interim measures such as mediation, which are less costly and less confrontational, are not permitted. Again, Alberta allows interim steps before requiring binding arbitration.

And if all this isn’t enough, Saskatchewan’s labour relations laws are upheld by a quasi-judicial Labour Relations Board that lacks transparency. The selection of arbitrators and members of the labour relations boards have the potential to exert great influence over the resolution of disputes.

Consider this in light of comments made by Mr. Justice George Baynton of the Saskatchewan court of Queen’s Bench in 2004: A dispassionate observer could well conclude that the impartiality of the [Labour Relations] board has been compromised.

In the 2006 provincial budget, Saskatchewan significantly reduced its business taxes which have dramatically improved the province’s investment climate and made it more competitive. However, in order for the province to reach its full potential, a fundamental reform of the province’s labour relations laws must be undertaken. Doing so will further improve Saskatchewan’s ability to attract high quality investment that will result in more jobs, lower unemployment, and ultimately higher incomes for all Saskatchewanian workers.