A spokesperson for the federal Treasury Board says the opening of big-box stores in Whitehorse has cut the cost of living, and dropped federal workers there from being eligible for the northern living allowance.

Ottawa has announced changes to the Isolated Post Directive, effective Aug.1, eliminating the Living Cost Differential for Yukon workers. The allowance is extra pay northern federal workers get for living in isolated areas, to compensate for the higher cost of living and travel.

But federal workers in the territorial have benefited from reduced prices from competition, and a Statistics Canada survey found the region should no longer qualify for northern benefits, says Treasury Board spokesperson Michelle Laliberté.

"Essentially what happened is because of changes in the retail market, there's been this significant downward swing in prices in the city of Whitehorse," says Laliberté. "That's basically the reason why this living cost differential has been taken away for public service employees in the city of Whitehorse."

However, Laliberté says the changes won't take effect immediately, as PSAC officials had said earlier Thursday. She says there's a four-month period between the annual adjustment recommended by StatsCan, and its effect on employees paycheques.

Laliberté didn't have the details that made Stats Can decide Whitehorse no longer qualified for the benefit.

"There's a Wal-Mart there now that's moved in, and a couple of other big stores that have increased competition in the area, and that's why this has gone on," she says. "Everyone has reduced their prices to be competitive, that's what the officials saw when they went in, that prices have decreased so that's why they're taking it away in this region."

The union's northern vice president, Jean Francois Des Lauriers, says federal government workers in the Yukon are going to be outraged when they see the reductions on their paycheques.

"Somewhere around $2-$300 per paycheque, an average of around $5,000 a per person per year" will be lost, he says. The cuts include RCMP officers, Parks Canada employees, and other federal agency workers in Yukon, he adds.

Des Lauriers estimates the pay cuts will affect about 700 workers in the Yukon.

He says the majority of those are workers in the lowest-paid job categories who are earning less than $30,000 a year. He says those will be the hardest hit.

He estimates the change in rules will cost the Yukon economy $5 million annually.

Des Lauriers says the union had no prior notice the isolated post allowances and benefits were being cut. Laliberté, however, notes the union is part of a joint committee that takes part in the review and assessment of the benefits.

The union leader he says PSAC will be doing whatever it can to challenge to reductions. Des Lauriers says the isolated post allowance is based on a formula that in turn is based on economic data from Statistics Canada.

"We are certainly going to try our darndest to appeal it. There are going to be some serious questions about the data and the formula they are using," he says.

Des Lauriers is trying to arrange meetings with other union officials to plan the strategy for that appeal.