Monday, February 3, 2014

Raising the minimum wage: Is it a good policy?

No one who works full time should ever have to raise a family in poverty.

- U.S. President Barack Obama
State of the Union Address, January 28, 2014

The minimum wage is very much in the news in Canada and the United States.  President Obama has indicated his commitment to increase the federal minimum wage in the U.S. for the first time since July 24, 2009.  In Canada, two provinces, Ontario and Nova Scotia, will be raising their minimum wage this year. There is an ongoing and lively debate on the subject in both countries.

South of the border, Barack Obama is supporting legislation that would raise the federal minimum wage to $10.10 an hour from the current $7.25 and index it to inflation.  Since 2009, the federal minimum wage has lost 5.8 per cent of its purchasing power.  Considering inflation, $7.25 an hour is 23 per cent lower today than it was in 1968.  The president contends that the current rate is holding back the middle class but his plan to raise it has been stalled in Congress.  Unfortunately, the Republican-led House of Representatives is unlikely to pursue the issue and no Senate Republican has supported the Obama initiative.

On the morning of President Obama's State of the Union address, the White House announced that the president will use his executive powers to increase the minimum wage for new federal contract workers to $10.10 after past legislative attempts to do so have been blocked in the gridlocked Congress.  House Speaker John Boehner quickly and vigorously denounced Obama's executive order.  He said "the move "affects absolutely no one."

Here in Canada, two provinces have just announced their intention to boost their minimum wage. In my home province of Ontario, the minimum wage has just been raised from $10.25 an hour to $11 per hour. On Thursday, January 30, 2014, Premier Kathleen Wynne announced that effective June 1, the lowest paid workers in Ontario will receive a 75 cent increase from the current rate.  In a press release, the premier stated, "Increasing the minimum wage will help improve the standard of living for hard working people across the province, while ensuring that businesses have the predictability necessary to plan for the future."

This is the first increase in Ontario's minimum wage since 2010, after which it was frozen.  The lowest income workers in the province have not seen a raise for four long years, even though the cost of living has steadily risen.  Although the increase means that Canada's most populous province will have the highest minimum wage in Canada (along with the territory of Nunavut), anti-poverty activists remain unsatisfied and disappointed.  They contend that $11 an hour is not nearly enough.

Not surprisingly, many business owners are disappointed and displeased too.  Charles Lammam of the Fraser Institute, a Vancouver-based right-wing think tank, condemned the move by the Ontario government. He declared that it's bad for business, the economy and low-income earners.  In Lamman's view, it will cause "employers to find ways to operate with fewer workers."  He argues that, "The bulk of those working for the minimum wage do not actually belong to low-income households. In Ontario the vast majority (81.5%) live in households with incomes above measures of relative poverty."

Nova Scotia has announced that it too will raise its minimum wage on April 1, 2014 to keep up with the cost of living.  The province's minimum wage will increase by 1.5 per cent to $10.40 an hour.  Marilyn More, Nova Scotia's Minister of Labour and Advanced Education, stated, "Our government is delivering on its commitment to make life better for families in Nova Scotia."  She said, "Students, single parents and others rely on minimum-wage jobs to make ends meet. This increase will help low-income individuals and their families by making sure the minimum wage is fair."

In Nova Scotia, minimum wage increases now occur annually and are based on the previous year’s national Consumer Price Index.  Some enlightened business owners in the province, such as Steven MacPherson, general manager of Jack Astor's restaurant in Halifax and a member of the the province's Minimum Wage Review Committee, support this policy.  MacPherson remarked, "This is the fairest way for both the employer and the employees."  "As a business owner," he added, "your number one asset  is your people. You have to make sure you take care of them, and you pay them fairly."

Is it true that employers, especially small businesses, have to choice but to lay people off and impede hiring when the minimum wage rises?  There is evidence to the contrary.  Arindrajit Dube, an associate professor of economics at the University of Massachusetts, has found little proof to support that claim.  Amherst, who has done substantial research on the subject of minimum wage, wrote the following statement last year in the New York Times.

While higher minimum wages raise earnings of low-wage workers, they do not have a detectable impact on employment. Our estimates... suggest that a hypothetical 10 per cent increase in the minimum wage affects employment in the restaurant or retail industries, by much less than 1 percent; the change is in fact statistically indistinguishable from zero.

Wise business owners realize that it is in their best interests to work with employee, not against them.  They are aware that happy, decently-paid workers will be more productive and that their job performance tends to be of a higher level.  They know that workers making a fair income will be healthier and absent less frequently.  They also know that workers who take home more money will spend it and spur the economy. It's a win-win situation.

Here are the current minimum wages in Canada:

Alberta: $9.95
British Columbia: $10.25
Manitoba: $10.45
New Brunswick: $10.00
Newfoundland and Labrador: $10.00
Northwest Territories: $10.00
Nova Scotia: $10.30 - to be raised to $10.40 per hour on April 1, 2014
Nunavut: $11.00
Ontario: $10.25 - to be raised to $11.00 per hour on June 1, 2014
Prince Edward Island: $10.00
Quebec: $10.15
Saskatchewan: $10.00
Yukon: $10.54

Source: Government of Canada

Let me return to the question I originally posed.  Is raising the minimum wage a good policy?  My answer is a resounding yes.  Why should there be any working poor?  People have to pay their bills and they have to put food on the table.  Obviously, the cost of living is certainly not going down.  That is why I strongly support increases to the minimum wage in Canada and the United States. Another consideration might be to implement a Living Wage, which is defined as the minimum income necessary for a workers to meet their basic needs.  This may be an even better way of helping the poorest members of society.  An independent study of the business benefits of establishing a Living Wage policy in London, England found that over 80 per cent of employees are of the opinion the Living Wage had improved the quality of their work and reduced absenteeism by approximately 25 per cent.

- Joanne