-----Original Message-----
From: Seth Klein [mailto:[log in to unmask]]
Sent: July 6, 2000 1:10 PM
Subject: minimum wage opinion piece
Hello CCPA members and friends,
The debate about BC's minimum wage is heating up again, and the usual
suspects are engaged in their Chicken Little routine. A new opinion piece
follows by Michael Goldberg and David Green, co-authors of the CCPA's
recent study on minimum wages in Canada. The piece disputes the claims
being made by business groups this past week.
Cheers,
Seth
Minimum Wage increase is good public policy
by Michael Goldberg and David Green
The BC government has asked for input on whether or not to increase the
minimum wage, and business groups have responded with a three-pronged
attack. First, they declare, minimum wages are "job killers" and will hurt
the people they are supposed to help. Second, they largely help kids from
well-to-do families doing part time work, so they are not good anti-poverty
policy. Third, we should consider tax credits instead.
We have recently completed an in-depth study of who gets paid the minimum
wage and the impact of minimum wage changes on employment. Our results are
directly relevant for evaluating the claims of business groups. In
particular, we find that negative impacts on employment are small.
Moreover, in a time of employment growth such as we are experiencing now,
these effects will not come in the form of layoffs, as business implies,
but as a slight slowdown in job growth. As Michael Campbell acknowledges in
his Vancouver Sun column, in such a climate the effects of a rise in the
minimum wage would be "negligible." As he correctly points out, minimum
wages are a bit player among the forces determining employment levels.
Indeed, as our research shows, over the past two decades, large increases
in the minimum wage have been followed by both increases and decreases in
employment, demonstrating that other trends in the economy have much more
influence on employment than does the minimum wage.
The argument put forth by business groups is that if we foresee any
negative effects of a minimum wage change, we should not do it. This is a
silly position. All policies have costs. Even building a new bridge that
will benefit almost everyone will reduce business for a store owner beside
the old bridge. The question we need to answer is whether the benefits
outweigh the costs. Our study shows that, with respect to increasing the
minimum wage, the answer is yes.
Even taking into account conservative assumptions about disemployment
effects, we find that increasing the minimum wage generates an increase in
the total amount of money (the wage bill) going to low wage workers (and
this holds true for all age and gender groups). It would simply be bad
policy to forego a policy change that has positive overall benefits just
because there are some costs associated with it, especially when the costs
are small.
The second argument raised by opponents of the minimum wage is that it
benefits only teenagers, most of whom live at home in comfortable
middle-class families. Not true. This criticism is based on a popular
misconception about who minimum wage workers are. According to Statistics
Canada, 61 per cent of minimum wage workers are adults, and 64 per cent are
women. A majority of minimum wage workers between 20 and 25 were full-time
students at some time during the year, indicating minimum wage jobs are an
important source of income for many students seeking to finance their
post-secondary education.
Most importantly, our research clearly shows that minimum wage earners are
over-represented among families with low incomes. Thus, increasing the
minimum wage will disproportionately benefit low-income workers and
families.
The combination of the first and second arguments also reveals how
desperate the opponents of the minimum wage are to stop it. They are
willing to make completely contradictory arguments to fight it. On one
hand, they argue that minimum wages have big negative employment effects
for poor people (the "very people they are supposed to help"). On the other
hand, they tell us the primary people who receive minimum wages are kids in
well-off families. They can't have it both ways. In fact, neither statement
is true.
Perhaps the most interesting statement from minimum wage opponents is their
call for increased tax credits for the poor in place of minimum wage
increases. We are happy to hear this call for positive initiatives to help
the poor. However, we disagree with a "one or the other" approach. What we
need is a comprehensive and multifaceted anti-poverty strategy.
The minimum wage should be seen as part of a larger set of tools aimed at
reducing poverty and inequality. Moreover, to eliminate the minimum wage
(or effectively eliminate it by letting inflation eat it away) and instead
increase tax credits has negative side effects--namely, it sees
taxpayers-at-large subsidizing industries and employers that pay inadequate
wages, and encourages the artificial expansion of low-wage industries
(hardly desirable, since low-wage industries tend to generate dead-end jobs
with no training). A tax credit in combination with a meaningful minimum
wage, however, would be a positive response to the problems facing the
working poor.
How, then, should the minimum wage be set? We propose the following
criterion: in a just society, no one working full-time should have an
income below the poverty line.
At $7.15 per hour, BC has the highest provincial minimum wage in Canada.
But even at that rate someone working full-year at 40 hours per week earns
an annual pre-tax income of only $14,872. That's too low. This amount falls
$1,774 below the Statistics Canada Low Income Cut Off (LICO) -- more
commonly known as the poverty line -- for a single person in a large urban
centre.
The minimum wage would need to increase to $8 per hour in order for this
individual's gross income to equal the poverty line. And there is no good
reason why such a goal should remain out of reach.
BC's neighbour to the south, Washington state, has a minimum wage of $6.50
per hour, which in Canadian dollars is equivalent to about $9.75. Moreover,
after accounting for inflation, real minimum wages in Canada have fallen
dramatically from their peak value in the mid-1970s. Even with increases
since 1995, the purchasing power of BC's minimum wage is about $1.50 less
than it was in 1976.
After establishing an $8 minimum wage, a tax credit could then help other
members of the working poor who cannot find full-time work or who have
families to support to make it to the poverty line as well. Maintaining the
minimum wage at a level such that individuals working full-time are not
working themselves into poverty would then provide a stable, predictable
means of setting and increasing the minimum wage in the future. Minimum
wages cannot end poverty on their own, but they can be an effective
anti-poverty tool in a larger policy toolbox needed to raise the floor for
low-income people.
-- 30 --
Michael Goldberg is the research director with the Social Planning and
Research Council of BC, and David Green is an associate professor of
economics at the University of BC. They are co-authors of a study entitled
Raising the Floor: The Economic and Social Benefits of Minimum Wages in
Canada, published last year by the Canadian Centre for Policy Alternatives
(www.policyalternatives.ca).
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Seth Klein
Director, BC Office
Canadian Centre for Policy Alternatives
[log in to unmask] CCPA-BC
tel. (604) 801-5121 1400 - 207 West Hastings St.
fax. (604) 801-5122 Vancouver, BC V6B 1H7
ccpa webpage: http://www.policyalternatives.ca
caw 3000
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of importance to Canadians and British Columbians.
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Graduate Department of Community Health
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