Members for Democracy Archive

Contracting Labour for the MTS Centre: Implications for the Winnipeg Economy

Dr. Ian Hudson
Professor of Economics
University of Manitoba
hudsoni@ms.umanitoba.ca

MTS Centre and Winnipeg Community Economic Development:

The MTS Centre, located on the site of the former flagship Eaton's store on Portage Avenue, in the heart of downtown Winnipeg, offers some potential as a vehicle for community economic development. Large projects like the MTS Centre create new jobs and can increase spending on locally produced goods and services. In addition to the obvious benefit of new employment in the construction of the facility, the MTS Centre represents a source of increased demand for all kinds of goods and services. Everything that goes into making and running the MTS Centre is a source of demand for other businesses, offering the possibility of growth and increased employment in a wide variety of industries. Certainly, the commitment of $40 million of public money by municipal, provincial, and federal governments was undertaken with this potential in mind. Approximately 30% of the $133 million facility was publicly financed. As such, the citizens of Winnipeg have a considerable stake in assessing whether the MTS Centre is making the most of its potential as an engine of community economic development.

Following the money: Linkages and Leakages

In order to assess whether businesses, facilities, and infrastructure are effective and efficient vehicles of local economic development, we need to look beyond the "bottom line" of dollars generated. Specifically, we need to be cognizant of where the money flows. The source and direction of resource flows into and out from the MTS Centre impact the rest of the local economy. No development project or business enterprise is self-contained. Resources (labour, machinery, primary and intermediate goods) for construction and operation of the project all come from somewhere. One can think of all of the inputs into the construction of the MTS Centre (steel, glass, concrete, seats, electronics, construction labour, etcetera). Similarly, one can imagine all of the inputs that enable the operation of the facility to continue (electricity, infrastructure maintenance and replacement, staging and conversion labour, etcetera). In economic terms, the connections between a project or enterprise and its local input providers are called "backward linkages." So, for example, if the construction of the MTS Centre results in increased local production of concrete, there is a backward linkage. The more of these linkages there are, the stronger is the local impact of the enterprise. Conversely, if the connections between input providers and a project like the MTS Centre are not local, money and jobs are said to be "leaking" out of the local economy, fuelling growth and employment elsewhere. In our above example, if the MTS Centre investors decided to source their concrete from Saskatchewan, this would represent a leakage.

Input-Output Analysis:

Economic consideration of the connections between industries within a city, region, or nation takes the form of Input-Output (I-O) analysis, which tracks the use of domestically produced goods and services by other domestic producers. So, for example, I-O analysis examines how much of the total output of the domestic agricultural sector is used in domestic manufacturing or processing industries. In turn, it looks at how much of domestic manufacturing is used as an input into the agricultural sector. We can measure the scale of the local economic benefit of an industry by examining how much demand it stimulates in other local industries. If the proportion of an industry's inputs coming from local sources is very small, it indicates that money is leaking from the local economy. In the case of the MTS Centre, our concern is whether or not the operation of the facility is realizing its maximum potential for local community economic development by taking advantage of all possible backward linkages.

So, a key question in assessing the economic development benefits of a project is: "Do income and wealth generated by enterprises and facilities remain and circulate within the local economy, or do they leak out to other regions?" A principal goal of community economic development is to maximize the proportion of the wealth and income that remains circulating within the local economy by creating and maintaining linkages to local providers.

The Issue at Hand: Contracting Staffing Services at the MTS Centre

This analysis focuses on one such linkage. The MTS Centre relies on workers to carry out the numerous tasks required to stage an event, be it a Moose game, the Juno Awards, or a monster truck rally. While the people who perform this work are predominantly local, it is not necessarily the case that all of the money spent on staffing stays within the Winnipeg economy.

At the Winnipeg Arena, the work required to set up and stage sports, concerts, and other events was carried out by workers represented by the International Alliance of Theatrical Stage Employees (IATSE) Local 63. IATSE had been in negotiations with True North Sports and Entertainment Ltd. since September of 2003 to provide workers for the new MTS Centre.

On November 1, 2004, however, True North Sports & Entertainment Ltd. granted the contract for event staffing at the MTS Centre to the Vancouver office of NASCO Staffing Solutions, an international company providing "on-demand staffing solutions." NASCO deals with the administrative end of staffing the MTS Centre's events, while hiring local workers on an on-demand basis to do the necessary work at the venue.

What Does this Analysis Aim to Measure, and How?

This analysis answers a relatively simple question: "What's the difference?" Does it matter to Winnipeg who is awarded this contract? If NASCO and IATSE both hire local people to do the work, then why should Winnipeggers be concerned?

The analysis is restricted to the conventional economic language of dollars and cents. It provides an accounting of the net changes to the local Winnipeg economy resulting from the awarding of the MTS Centre contract to NASCO.

Changes are measured relative to the counterfactual case of the contract being awarded to IATSE. This counterfactual is based on the terms of the last offer IATSE made to True North in negotiations, prior to the awarding of the contract to NASCO. We are, therefore, contrasting the current NASCO contract with what would have happened had they awarded the contract to IATSE.

NASCO charges those groups that rent the MTS Centre a rate dependent on the kinds of labour required for the specific event. Rates range from $19.75 per person per hour for general labour (the bulk of staffing needs for events) to $38.00 per person per hour for the highly skilled labour, such as riggers. Labour required to convert the arena from a hockey or ice-show venue to a concert or auto sports venue (here referred to as "conversion labour") is billed at $15.00 per hour.

In its negotiations with True North, IATSE offered to match NASCO's rates. Our analysis thus assumes that renters of the MTS Centre would pay exactly the same amount per person per hour, regardless of whether NASCO or IATSE is the contractor.

Given that the rate structures are identical, the question is whether there are leakages from the Winnipeg economy in the NASCO contract, or in the counterfactual IATSE contract. If so, how large are they? Of the hourly rate per person per hour, how much stays in the Winnipeg economy, and how much drains elsewhere?

Note: Any actual difference in the renter's cost between NASCO and IATSE staffing would result from differences in the number of staff deemed necessary to adequately stage an event. While data is not available for an accurate comparison of numbers of workers employed for various kinds of events, it is conceivable that NASCO offers efficiencies in staffing relative to IATSE, meaning fewer workers are required for a given event. This may or may not represent a leakage from the local economy, depending on whether renters (who realize the savings of labour efficiencies) are local or not. What it does represent is a transfer of income from workers (who are no longer employed or who have hours cut back due to labour efficiencies) to the renters of the MTS Centre, whether they be in Winnipeg or Warsaw.

Results

Our analysis suggests that, relative to staffing the MTS Centre with IATSE-represented workers, the costs to the Winnipeg economy of out-sourcing the contract to NASCO total an estimated $395,743 per year. There are two components to this figure. First, there is a direct effect, measuring income lost to local workers resulting from lower wages paid by NASCO than would have been paid by IATSE. Second, there is an indirect effect, represented in the analysis by the application of a multiplier to the amount of the direct change. This multiplier, described in greater detail below, is a standard part of measuring the economic impact of a change in income. In our case, it represents the spin-off effects of increased or decreased disposable income (wages) on the local economy.

• Direct effects: $267,394.00

The direct effect of contracting staffing services to NASCO arise from the fact that while NASCO and IATSE both offered the same rates to True North, NASCO passes on a much smaller portion of the hourly rate it charges renters to local workers. The remainder of the hourly fee goes to Vancouver. The amount of this leakage varies by the type of labour performed (high-, mid-, or low-skill), which in turn varies with the type of event. The Appendix to the report lays out a detailed breakdown of the amount of leakage-per-hour by skill level.

Total direct effects represent the sum of losses for three components:

1. Labour for concerts and similar events;
2. Additional conversion labour, and;
3. Spot calls for Manitoba Moose games.

1. Concerts and similar events:
   
   Concerts and other events requiring significant setup, staging, and teardown, comprise the bulk of person-hours from which there is a drain from the Winnipeg economy under the NASCO contract. Annually, such events require an estimated 29,400 hours of labour. Given the structure of labour for events and wage rates paid by NASCO relative to those offered by IATSE, this represents an annual leakage of $273,714.00. Details for the structure of labour for events and estimates of wage levels for low-, mid-, and high-skill wage categories are provided in the Appendix.
2. Conversion Labour:
   
   Conversion labour (converting ice to flooring and vice-versa, and removal and re-installation of glass) is estimated to require 4,032 hours of labour. This is based on a crew of 12 working an average of 6 hours on ice conversion and 8 hours on glass conversion per event, and the estimated number of events requiring such conversion per year, derived from the MTS Centre's schedule of events (www.truenorthproject.mb.ca) for January-April, 2005. We assume that the monthly average for this four-month period is reasonably representative of the year (see Appendix for detail). Given wage differences under the NASCO agreement, and the IATSE offer, $20,160 drains from the Winnipeg economy.
   
   

   Table 1: Direct Income Effects for event and conversion labour:
   NASCO contract and IATSE offer
   Events	Additional Conversion	Labour
   Estimated annual hours	29,400 a	4,032 a
   NASCO avg. hourly wage	12.08 b	10.00
   IATSE hourly wage offer	21.39	15.00
   Wage difference (hourly leakage to Vancouver)	9.31	5.00
   Total annual leakage	273,714	20,160
   a. See Appendix for detailed estimation of annual hours.
   b. Average hourly wage is a composite composed of three hourly wage rates, weighted by their respective shares of event labour for a typical event. See Appendix for detail.

   
   
3. Spot calls:
   
   The smallest component of the total leakage results from "spot calls" for Manitoba Moose games. Spot operators are remunerated on a flat, per-game basis for 40 home games. The total difference between NASCO and IATSE remuneration per game per operator is $46.00. This totals to a direct annual leakage of $5,520 from the Winnipeg economy.

Combined Direct Effects:

These three components of the leakage combine to total a direct loss of $299,394.00 in wage income circulating in the Winnipeg economy. From this is subtracted union dues normally deducted from Winnipeg IATSE workers and transferred to IATSE's Toronto national headquarters. This transfer to Toronto from Winnipeg totals an estimated $32,000 resulting in a $267,394.00 net loss of wage income.

• Indirect Effects: $137,542.00

In addition to the direct effects, the loss of income to Winnipeg workers has indirect, spin-off effects on the local economy. 267,394.00 dollars are no longer being spent and re-spent in Winnipeg. A dollar spent typically has an impact on economic output of greater than $1.00. The amount by which output increases from an injection of $1.00 is measured with an estimated parameter called a multiplier.

To take a simple example, if you obtain an additional dollar of income, you will typically save some of it, spend some of it, and have some of it taxed away. Of the amount you spend, some of it will be on goods and services produced locally, and some of it will be on imported goods. So, for example, you may spend 75 cents of your extra dollar, of which 25 cents is on local goods and services. Those 25 cents are in turn spent by local people, with perhaps a quarter of that (6.25 cents) in turn remaining in the local economy. The cycle continues until the amount remaining in the local economy becomes negligible. The sum of every round of expenditure that remains in the local economy represents the indirect effect of the additional dollar. In our example, it totals about 33 cents. So, to calculate the total, direct and indirect local impact of an extra dollar of income, we would multiply it by 1.33. 1.33 is the multiplier.

Statistics Canada estimates multipliers by province for income generated by various sectors of industry. The relevant multiplier for the MTS Centre is estimated at 1.48. Using this multiplier, we calculate that the indirect effects on the Winnipeg economy are $128,349.

Concluding Remarks: The issue in perspective

In the scale of a $133 million facility, the leakage of $395,743 might appear to be an unfortunate but reasonably small loss, representing about 13 jobs at an annual income of $30,000. However, looked at through the lens of community economic development, the issue takes on a new relevance for Winnipeg. Given that IATSE offered to match the terms offered by NASCO, their Vancouver competitor, there seems to be no benefit whatsoever in terms of reducing costs or making the MTS Centre a more competitive venue for event staging. From the standpoint of the Winnipeg economy, True North's awarding of the staffing contract to NASCO represents nearly four hundred thousand dollars in pure loss. Of course, in this case, the loss of workers in Winnipeg is a gain for the owners of Vancouver-based NASCO, and if we are concerned only about quantities of money, rather than about where that money flows, and to whom, there is not much cause for alarm. However, we should bear in mind that the arena is about 1/3 publicly-financed. As such, the public ought to ensure that the MTS Centre's management takes advantage of every opportunity to further the economic development of Winnipeg, and to advance the economic security of Winnipeggers. This is one of those opportunities. Awarding the staffing contract to IATSE, rather than to NASCO, would have represented a costless decision on the part of True North to capitalize on more of the MTS Centre's potential for Winnipeg's economic development.

Appendix: Working Assumptions and Methods for Estimation

Three major kinds of work that have been contracted to NASCO were considered in the analysis. This work was formerly carried out by IATSE-represented workers at the Winnipeg Arena.

1. Event labour (setup, teardown, and event staffing for concert and similar events including conventions, awards shows, wrestling, and autosports)
2. Conversion labour (converting ice surface and removal/reinstallation of glass.
3. Manitoba Moose spot calls

Each category of work involves a different structure of labour, varying in its skill, qualification requirements, and remuneration. The number of annual person-hours of labour for each type of work also varies considerably.

Estimates for annual person-hours in each work category are derived from the following data:

1. number of hours worked by IATSE workers between January 1 and November 1 of 2004 on event labour and spot calls, totaling 25,000. An annual figure was calculated by taking a monthly average (2,500) and adding this number for each of November and December, yielding 30,000. Moose spot calls totaling and estimated 600 hours of labour were subtracted and counted separately (see below), giving a final total of 29,400 hours.
2. number of scheduled Manitoba Moose home games
3. MTS Centre's schedule of events for Jan-Apr., posted on their website (www.truenorthproject.mb.ca; accessed Jan. 28, 2005): True North's press materials estimated 130 events per year at the MTS Centre. Taking the four-month period for which events scheduling is available on the website and the Manitoba Moose home schedule, we estimate an annual total of 116 events. This assumes that the period of January through April is representative of the annual schedule, with adjustments made for hockey season. However, we are only interested in events that require conversion labour. As such, we subtract a number of events from our estimated total of 116, as follows. Moose events are counted separately, removing 40 of the events. Similarly, Wheat Kings games (estimated 2 per month for 8 months) and other sporadic events (such as "oldtimers hockey" which would not have involved IATSE workers) are subtracted. In addition, many events are multi-day affairs (Curling, Monster Jam, Disney on Ice, etc... ). We count these as a single event, since conversion only occurs once. Given our focus on events that would have required IATSE workers' conversion labour, and the resultant subtractions outlined above, we estimate a monthly average of 2 events, for an annual estimate of 24 events. Applying an average of 168 person-hours of labour per event yields an annual average estimate of 4,032 hours.

Wage levels are based on:

IATSE: wage = rate charged to True North per person-hour, as per IATSE's 2004 offer in negotiations with True North.

NASCO: estimates based on NASCO wage-quotes for conversion labour and low-range event workers, press reports for mid-range event workers, and 2004 wage rates for high-range event workers. We assume that the high-skill workers have a more downwardly inflexible wage due to their relative scarcity.

The Structure of Labour:

For concert and similar events, the structure of labour is derived from data for a typical rock and roll concert, provided by IATSE. Person-hours of labour are divided into low-range, mid-range, and high-range wage categories. At the low-range end are general labourers (or "hands"), forks, and truck loaders. In the mid-range are ground riggers and heads, and in the high-range are riggers.

Approximately 84% of person-hours for concerts and similar events ("events") are remunerated at the low-range. Approximately 8% are remunerated in the mid-range, with the remaining 8% remunerated at the high range.

The dollar amount of a composite person-hour of event labour that is transferred from Winnipeg to Vancouver-based NASCO is estimated to be:

0.84(9.75)+0.08(9.00)+0.08(5.00)=$9.31

For Manitoba Moose games, spot workers were paid a flat rate on a per game basis. Spots are here categorized as mid-range labour, and the analysis assumes that per show, the proportional shares of the total rate accruing to NASCO and the worker are equal to those accruing to the worker and NASCO for other mid-range event labour. Per-game rates in 2004 were $115.00. Mid-range event labour under NASCO receives approximately 60% (69.00) of this, while NASCO retains 40% ($46.00).

Conversion labour is billed at $15.00 per person per hour by NASCO, of which $10.00 per hour is paid in wages to the worker. IATSE offered to match this rate, with the entire amount paid as wages. As such, every hour of conversion labour worked under the NASCO contract results in a transfer of $5.00 from Winnipeg workers to NASCO in Vancouver, relative to the counterfactual of IATSE-represented workers performing the labour.