A Most Peculiar Proposal

Categories: Bargaining, Bargaining Updates 2014, Salary

As part of its general wage increase offer the University has made what must be described as a most peculiar proposal. Their proposal is that on May 1, 2016, in addition to the general wage increase they have proposed, our salaries will also be increased by 50% of the amount by which the Economic Forecast Council forecast underestimates real (inflation adjusted) GDP growth in 2014.  They also proposed similar forecast error increases on May 1, 2017, May 1, 2018, and May 1, 2019. This will take some explaining.

The Budget Transparency and Accountability Act of July 6, 2000 creates an Economic Forecast Council comprising “at least 10 persons appointed by order of the minister and selected for their knowledge of the economy of British Columbia and their expertise in economic analysis and forecasting.” Initially the Council included both academic and business experts, but after the Liberals came to power they quickly eliminated the academic experts, and the council now consists solely of appointees from banks, private consulting firms, business organizations like the Business Council of BC, and independent non-profit research organizations like the Conference Board of Canada.

In approximately February of each year the BC government brings down its annual budget, which includes forecasts of real  GDP growth for that year by members of the Council.  In the 2014 BC Budget and Fiscal Plan members of the Council forecast real GDP growth for 2014. Their forecasts ranged from 2.0% to 2.7% growth in real GDP, with a mean forecast of 2.33%. In November 2015 (twenty months after the 2014 budget was passed) Statistics Canada will produce its estimates of actual real GDP in 2014 and it will be possible to evaluate the accuracy of the Council’s forecasts. UBC has proposed that if the Council’s forecast error (Actual minus Mean Forecast) is positive, then in May 2016 (six months after the forecast error is known) our salaries would increase by one half of the forecast error.  In other words, they propose to tie our salaries to inaccuracies in the Economic Forecast Council’s forecasts twenty-six months earlier. If the Council’s average forecast is exactly correct we would get no additional salary increase, but if the Council wildly underestimates growth we will be in for a big payday.

The University claimed that the purpose of this peculiar proposal is to share “the benefits of economic growth between employees in the public sector and the Province contingent on growth in BC’s real GDP” This is false. Had the University wanted to tie our salaries to BC’s real GDP growth, they should have proposed increases based on actual GDP growth, or on GDP growth in excess of the long-run average growth rate. Rather than tie our salaries to BC’s real GDP growth, they have actually proposed to tie them to the inaccuracy of the Economic Forecast Council’s forecasts.  Now, to be fair, as far as we know the University’s proposal was devised by the Government, and the University believes the Government is willing to fund the proposal. In any case it is the UBC Board of Governors who are responsible for proposals made at the bargaining table and, for better or worse, this is the peculiar proposal they have decided to make.

How accurate has the Council been in the past? Starting in 2003, the first year that academic experts were eliminated from the Council, and ending in 2012, the last year for which Statistics Canada estimates are available, the Council’s estimates have been reasonably accurate (whether they would have been more or less accurate with the continued inclusion of academic experts is unknown). During that 10-year period the mean absolute forecast error was 0.85, which is not bad considering how sensitive BC’s GDP is to unexpected developments in international markets and resource prices. What would have been the effect on our salaries during those 10 years had the University’s current proposal been in place during that time? The average annual increase over those ten years would have been fifteen-one hundredths of one percent (.0015), which can be translated as $150 annually (before tax) for a faculty member making $100,000.

There is, however, no accurate way to assess what effect this specific proposal would really have on our incomes in the future. First, we have no way of knowing whether the future members of the Council, which is appointed by the Government, will be as accurate in forecasting GDP growth as the past members of the Council. Second, we have no way of knowing how the Council’s forecasting ability will be affected by finding its forecasts part of the mechanism by which faculty members are paid and universities are funded.

We have not responded to this proposal. There is very little point in discussing what is in effect a lottery with unknown expected payout until the University makes a proposal on a general wage increase that is sufficient to keep pace with inflation and faculty salaries at comparable institutions.  Nonetheless it remains a most peculiar proposal.