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TORONTO/VANCOUVER (Reuters) - Canadian labor relations are getting ugly as companies look to cut costs inflated by a strong Canadian dollar and workers seek to reap rewards from a relatively strong domestic economy.
The battle is in focus thanks to two high-profile lockouts by companies seeking concessions, including pay cuts, from unionized workers. It will broaden once talks start later this year in the auto sector as it extends its recovery from the 2009 bankruptcies of two of the U.S. Big Three automakers, with the potential for more disputes.
"I think it's noteworthy the two high-profile cases we've got are both lockouts," said labor relations consultant David Shepherdson, author of a November Conference Board of Canada report on labor disputes.
Describing lockouts as a "relatively rare event" and an indication of how serious management is about controlling costs, he added: "It is a signal I believe of what we may see more of, and if in fact that plays out, it is a significant change."
Canada's Conservative government, for its part, has gone to unusual lengths to stop or prevent strikes at Canada Post and Air Canada, a pattern that could further embolden employers.
The lockouts that started the year are in Canada's manufacturing heartland of Ontario and in typically union-friendly Quebec.
Caterpillar Inc's Electro-Motive subsidiary locked out some 450 locomotive manufacturing workers in London, Ontario, on January 1 after the Canadian Auto Workers rejected a contract proposal that included pay and benefit cuts that the unions pegs at C$65,000 ($63,300) in concessions per member.
"All we'd be doing if they extracted C$65,000 per member would be giving it back to a very profitable company to spread it out over shareholders and executive salaries, when you need these kind of jobs to feed the economy," said Ken Lewenza, president of the CAW, Canada's largest private sector union.
In Quebec, Rio Tinto Alcan locked out more than 700 workers at its Alma aluminum smelter after they rejected a contract offer. A key sticking point was the company's refusal to put limits on how many non-union workers it could hire in efforts to bring down wage costs.
The focus on costs became more acute over the last decade, a period when the Canadian dollar rose by some 60 percent against its U.S. counterpart, making it more costly for international companies to employ workers in Canada.
"I think that what we're seeing in these labor lockouts is still the latest chapter in the story of the strength in the Canadian dollar," said Avery Shenfeld, chief economist at CIBC World Markets.
Between 2001 and 2010 the total cost of the labor needed to produce one unit of GDP, or unit labor cost, rose 7.1 percent in Canada and only 0.8 percent in the United States. Two thirds of the increase came from the higher Canadian dollar.
"It's something that doesn't affect the economy right away. Companies have to believe that it is a permanent state of affairs and increasingly they are starting to operate as if there has been a fundamental shift," Doug Porter, deputy chief economist at BMO Capital Markets said of the stronger dollar.
It has "hurt the competitiveness of Canadian labor very significantly," he added.
Canada's labor productivity, which measures how much is produced for each hour worked and could compensate for the pressures of a stronger dollar, rose only 0.7 percent between 2001 and 2010, while it rose 2.5 percent in the United States.
Even so, a relatively strong domestic economy has helped boost worker expectations, setting unions and management on a potential collision course. Canadian private-sector workers are more than twice as likely to belong to a union than their U.S. counterparts, official statistics show.
"Canadian workers and Canadian unions will be more likely to want to benefit from the fact that Canada has weathered the economic storm better than other places," said George Smith, a researcher at Queen's University in Kingston, Ontario, who has worked in industrial relations at Canadian Pacific Railway Ltd and Air Canada.
But the continuing global economic uncertainty means businesses are focused on ensuring their costs are sustainable over the long term, said Shepherdson, the labor relations consultant.
Canadian autoworkers are a bit more expensive than their American counterparts, according to Kristin Dziczek, a labor analyst at the Center for Automotive Research. The issue is not just the strong Canadian dollar, but recent deals that have lowered healthcare costs for the U.S. firms.
"The CAW has historically resisted going anywhere near profit-sharing variable pay on any number of grounds, and my sense is the automakers are probably prepared to force the issue this round of bargaining," said Shepherdson. "I think the automakers this year have a very real incentive to make some fundamental changes."
Scotiabank economist Carlos Gomes warned recently that Canada's auto sector, which accounts for about 10 percent of the country's manufacturing output, is in danger of losing market share in North America as investment dollars flow to Mexico.
To be sure, not everyone is pessimistic about Canadian industrial relations. Jayson Myers, chief executive of Canadian Manufacturers & Exporters, an industry group, does not think conflict is on the rise, though he said unions and management need to work together more closely.
"I think we tend to overstate the importance of labor costs," he said, noting that labor makes up a relatively small part of the total costs of Canadian manufacturers.
Still, in addition to pressure from employers, unions have faced a Conservative government at home that has shown an increasingly low tolerance for labor unrest.
The right-of-center Conservatives were quick last year to step in with back-to-work and other legislation to halt disputes between unions and Air Canada, the country's biggest airline, as well as at Canada Post.
"The labor movement's under incredible pressure," Lewenza said.
Aware of these pressures, the CAW is holding merger talks with the Communications, Energy and Paperworkers Union of Canada, another big labor group. CAW membership fell from to 255,000 in 2008 to 195,000 in 2010, according to reports published by the Canadian government.
Canada's manufacturing sector has been declining for years, even as robust commodity prices helped the overall economy outperform that of most other developed countries. Factory employment fell to its lowest on record in last October.
Until 1990, Canada's manufacturing sector was its single largest employer. But that has now slipped to third place behind trade and health-care sectors.
"This is a relentless tide that unions will have to deal with," Porter said.
Additional reporting by Jennifer Kwan; Editing by Janet Guttsman and Frank McGurty