The Rate of Exploitation of Workers at Air Canada, One of the Largest Private Employers in Canada

The following applies to Air Canada workers before the COVID-19. The situation undoubtedly has changed since then since the airline industry has suffered disproportionately an economic crisis relative to some other industries (such as food production).

In another post, I presented the twenty largest employers in Canada according to level of profit (see A Short List of the Largest Private Employers in Canada, According to Profit). One of those employers is Air Canada, a privatized airline company (that used to be under public ownership).

I have tried to calculate the rate of exploitation of workers of Magna International in an earlier post (see The Rate of Exploitation of Workers at Magna International Inc., One of the Largest Private Employers in Toronto, Part One); Magna International is one of the largest employers in Toronto.

I decided to look at the annual report of some of the largest private companies in Toronto and Canada if they are available in order to calculate the rate of exploitation at a more micro level than aggregate rates of surplus value at the national or international level. Politically, this is necessary since social democrats here in Toronto (and undoubtedly elsewhere) vaguely may refer to exploitation–while simultaneously and contradictorily referring to “decent work” and “fair contracts.” Calculating even approximately the rate of exploitation at a more micro level thus has political relevance.

Conclusions First

I am going to begin with a conclusion, and then explain what it means and how it is calculated so that the reader understands where I am headed in the calculations:

For every hour worked that produces her/his wage, a worker at Air Canada works around an additional 42 minutes for free for Air Canada.

In a 6-hour work day, the worker produces her/his wage in about 3.5 hours and works 2.5 hours for free for Air Canada. Of course, during the time that the worker produces her/his own wage, s/he is subject to the power of management and hence is  also unfree (see, for instance, Management Rights, Part Four: Private Sector Collective Agreement, Ontario and Employers as Dictators, Part One).

In an 8-hour work day, the worker produces her/his wage in about 5 hours 36 minutes and works for 2 hours and 24 minutes free for Air Canada.

In a 12-hour day, the worker produces her/his wage in about 8 hours 24 minutes and works for free for 3 hours 36 minutes for Air Canada.

Of course, social democrats refer to this situation, in one way or another, as “fair.” They do so by using such terms as “fair contract,” “free collective bargaining,” “fairness,” “economic justice,” “good contract,” “decent work,” “companies paying their fair share of taxes” and similar rhetoric. Such rhetoric, rather than enlightening workers about their situation, actually hide it. The working class deserves better than this ideology.

The Nature of the Rate of Exploitation

But what is the rate of exploitation? And why not use the usual rate of profit or the rate of return? The rate of profit is calculated as profit divided by investment. Since employers purchase both the means for work–buildings, computers, office supplies, raw material–and hire workers–we can classify investment into two categories: c, meaning constant capital, or the capital invested in commodities other than workers; and v, or variable capital, the capital invested in the hiring of workers for a certain period of time (wages, salaries and benefits).

The purpose of investment in a capitalist economy is to obtain more money (see The Money Circuit of Capital), and the additional money is surplus value when it is related to its source: workers working for more time than what they cost to produce themselves. The relation between surplus value and variable capital (or wages and salaries) is the rate of surplus value or the rate of exploitation, expressed as a ratio: s/v.

When the surplus is related to both c and v and expressed as a ratio, it is the rate of profit: s/(c+v).

In Marxian economics, you cannot simply use the economic classifications provided by employers and governments since such classifications often hide the nature of the social world in which we live. The rate of profit underestimates the rate of exploitation since the surplus value is related to total investment and not just to the workers. Furthermore, it makes the surplus value appear to derive from both constant capital and variable capital.

How I Calculated the Rate of Exploitation of Air Canada Workers

I calculated the conclusion as follows:

The income statement is broken into the following categories for 2019 (in millions of Canadian  dollars) :

Total revenue: $19,131
Total operating expenses: $17,481

Wages, salaries and benefits: $3,184
Aircraft fuel: $3,862
Regional airlines expense:

Aircraft fuel: $485
Other: $1,95

Depreciation and amortization: $1,986

Aircraft maintenance: $1,004

Airport and navigation fees: $990

Sales and distribution costs: $874

Ground package costs: $627

Catering and onboard services: $445

Communications and information technology: $397

Other: $1,671

Operating income: $1,650
Non-operating income (expense) [if it is income according to standard accounting practices, it has no parentheses; if it is an expense, it is within parentheses and needs to be subtracted–but see below): $125

Foreign exchange gain (loss): $499
Interest income: $164
Interest expense: ($515)
Interest capitalized: $35
Net financing expense relating to employee benefits: ($39)
Gain (loss) on financial instruments recorded at fair value: $23
Gain on debt settlements and modifications: $6
Gain (loss) on disposal of assets: $13
Other: ($61)

Income before income taxes: $1,775 (adding operating income and non-operating income (expense) together)

Some explanation of “interest capitalized” is in order. I have had difficulty in understanding the nature of “Interest capitalized.” As far as I can tell, interest that is normally paid and is an expense for the particular employer is treated, in Marxian economics, as part of surplus value because, at the macro level, it comes from the surplus value produced by the workers. Interest capitalized seems to be different since the interest charged on money borrowed for the purpose of the construction of fixed assets (with a specific interest rate attached to it) is “capitalized,” or not considered part of interest expenses until the construction is finished and the fixed asset is ready to use. This accounting distinction, however, from the macro point of view, is irrelevant since both interest expenses and interest capitalized are derived from the surplus value produced by workers (or appropriated from them in another industry). Accordingly, both interest expenses and interest capitalized should be added to the amount of “Income before income taxes” category.

The adjusted “Income before income taxes” therefore is: ($1775 +$515)=$2,290 (interest capitalization has already been added to income so there is no need to add it here).

Another necessary adjustment relates to the category and amount “Net financing expense relating to employee benefits: ($39)”. Pension-related expenses should probably form part of wages and hence should be shifted to “operating expenses.” This shift does not change the surplus value produced nor the “Income before income taxes” category; it just changes the distribution of expenses, from “Non-operating income (expense) to “Total operating expenses” by way of increasing the category “Wages, salaries and benefits” by $39; the category “Wages, salaries and benefits” are therefore $3,223.

The final calculations with adjustments before determining the rate of surplus value are:

Total revenue: $19,131
Total operating expenses: $17,520
Operating income: $1611
Non-operating income: $640
Income before income taxes: $2251

To calculate the rate of surplus value, we need to relate “Income before income taxes” to “Wages, salaries and benefits.” So, with the adjustments in place:, s=2251; v=3223. The rate of exploitation or the rate of surplus value=s/v=2251/3223=70%.

That means that for every hour worked that produces her/his wage, a worker at Air Canada works around an additional 42 minutes for free for Air Canada.

In a 6-hour work day, the worker produces her/his wage in about 3.5 hours and works 2.5 hours for free for Air Canada. Of course, during the time that the worker produces her/his own wage, s/he is subject to the power of management and hence is unfree (see, for instance, Management Rights, Part Four: Private Sector Collective Agreement, Ontario  and   Employers as Dictators, Part One).

In an 8-hour work day, the worker produces her/his wage in about 5 hours 36 minutes and works for 2 hours and 24 minutes free for Air Canada.

In a 12-hour day, the worker produces her/his wage in about 8 hours 24 minutes and works for free for 3 hours 36 minutes for Air Canada.

I have used the lengths of the working day as 6, 8 and 12 because the length of the working day varies. According to one source:

As a customer service agent, you ll work from 3:00 am, 4:00 am and 5:00 am morning shifts, or 11:00 am, 12:00 pm, 2:00 pm. Afternoon shifts. Not sure about night shifts as I never work any of them. Part time is 6 hrs per day and full time can be 8-16 hrs. per day. You can exchange shifts, give away shifts, trade, pick or even parcial shifts. That part helps a lot when you need a day or 2 off.

Social-Democratic Rhetoric Neglects the Wider Context that Reveals the Exploitation of Workers

Of course, social democrats refer to this situation, in one way or another, as “fair.” They do so by using such terms as “fair contract,” “free collective bargaining,” “fairness,” “economic justice,” “good contract,” “decent work,” “companies paying their fair share of taxes” and similar rhetoric. Such rhetoric, rather than enlightening workers about their situation, actually hides it. The working class deserves better than this ideology.

By neglecting the fact of exploitation, other social democrats draw incorrect political conclusions. Thus, there are social democrats who try to claim that we need to reform the police rather than abolish it (see, for example, Reform versus Abolition of Police, Part Two) because workers have property. Some workers in the more developed capitalist countries do indeed have property (and fewer, of course, in the less developed capitalist countries), but they obtain that property by being exploited in the first place. If they understood that, would they support the police, whose main function is to protect the power of the employer to exploit them (and, only secondarily, to protect them and their own property)?

If the above calculations can be improved in any way, please comment on the above. I have been unable to find many guideposts about how to calculate the rate of exploitation or the rate of surplus value at the level of particular companies.

Worker Resistance Against Management, Part Two

This is a continuation of a series of posts on worker resistance. The following was written by Herman Rosenfeld. Since it formed part of a course that he, Jordan House and I presented for workers at the Toronto Pearson International Airport, I am including the preliminary instructions and the subsequent questions so that others can modify and make use of it in similar courses.

Activity Sheet 3: Learning from Collective Resistance Experiences

This is a small group activity.
Read the story and answer the questions below together.
Be prepared to describe the collective struggle to the whole class, and report your answers.
You have 25 minutes to complete this exercise. [This exercise, initially, was combined with resistance against management at the brewery, so we permitted them 25 minutes for both.]

Clapping for Lisa Raitt

When CAW (Canada Auto Workers union] Air-Canada reservation and air ticket agents briefly went on strike over a series of contract concessions demanded by management, the Conservative government [of Stephen Harper, prime minister at the federal or Canada-wide level], though Labour Minister Lisa Raitt quickly introduced a law to legislate them back to work. (It would have been the 5th time in 5 years that the Harper government had taken away workers’ right to strike.) An agreement was reached between the union and Air Canada.

The workers who handle baggage, members of the IAM (International Association of Machinists) rejected the tentative agreement bargained by their leadership and demanded that they go back to the table and bargain improvements.

After the rejection, the workers started forming “Action Committees” to prepare co-workers to organize rallies at the airport, to pressure the employer to bargain seriously. The IAM workers had previously supported the actions of Reservation and Flight Attendants, who had protested the elimination of their right to strike.

A key action was to write a letter to the company president, complaining about endless demands for concessions and the culture of entitlement for the top executives.

Some quotes from the letter:

“It smacks of hypocrisy of the highest order to be led by Executives that continually demand we make sacrifices for the “viability” of the Company and then watch those same Executives pocket millions in bonuses and receive raises in pay and pension benefits in excess of 70% in a year.

A day doesn’t go by without us hearing about how we are the problem and how management is trying to find ways to replace us with “low cost” workers from senior Executives whoa are never replaceable and must be highly compensated in order to maintain their loyalty to the Company.

Over the past decade we have agreed to take wave after wave of concessions and have watched this goodwill allow Senior management to make hundreds of millions in payments of “special distributions” to their corporate backers or in golden parachutes to departing millionaire Executives.

It is time to lead by example. It’s time to end this culture of senior executives viewing us workers as a cost in which to be squeezed for more bonuses at the top.

This will require a major change in culture including management not using their friends in Ottawa to threaten our unions into concessionary agreements, ending the disastrous habit of unilaterally imposing policies on us (lie the unilateral changes to travel charges) and ending the out of control greed at the top.

The workers planned to present the letter to the president at the private management celebration of the 75th anniversary of Air Canada’s founding. They stormed into the meeting and, after a scuffle with the police, agreed to select 2 representatives to deliver the latter. Rovinescu, the company president, received the letter, but was not happy about it.

Shortly after this incident, Labour Minister Lisa Raitt, landed at Pearson Airport for a meeting. As she exited the plane, the worker who recognized her, started a slow, rhythmic clapping, as a kind of spontaneous protest against the attack on their collective bargaining rights, followed her through the terminal, as the crowd of clapping workers grew Raitt, who fancied herself as a kind of “friend of the workers” was angry, and called on the police to,” “arrest these animals!”

The police took no action, but Air Canada security guards sent 5 or 6 of the protesters home, in an action that usually signifies a discharge.

The word of the firings went viral. All of the IAM workers at Pearson stopped work and stayed out all night, demanding that the fired workers be reinstated, and that collective bargaining begin again. All 30 of the workers who went on the wildcat were promptly fired.

The morning shift workers refused to work. All workers in Vancouver, Montreal and in airports across Canada downed their tools as well. It made the national news.

The company and the union began talks, and agreed to send the issue of the wildcat to an arbitrator (one often used by Air Canada and its unions, but one not known for his friendliness to union and worker issues).

After heated debate, the workers decided to stay out until the workers were reinstated. The striking workers spent a lot of time talking with members of the other unions at the airport, building solidarity with their actions and issues. When the fired workers were reinstated (although further discipline was planned), the wildcat was ended. Bargaining on the contract began soon afterwards.

A few months later, after the contract was signed, Air Canada fired a number of activist workers using their private E-mail comments, as “incriminating” evidence against them.

Questions

  1. What were some of the plans and decisions that made this action successful?
  2. What were some of the limits of this action–and things that might hold the union back from moving forward after this action? How might these limits be addressed?
  3. What lessons can be learned from this experience for your own workplace, union and efforts to build the power of workers there?