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The Progressive Economics Forum

Why the Minimum Wage Debate Isn’t Going to Go Away

Yesterday I tweeted this:

<blink>

Gap will raise minimum hourly pay

Walmart “looking” at support of min wage raise

In honour of the momentum, I am posting the piece I wrote for Economy Lab a while back, and including the numbers that drive the chart that attracted quite a lot of attention.

There is a good reason why the minimum wage has fired up so much debate lately. It has to do with how a “trickle-away” recovery has dogged so many advanced economies since the 2008 global crisis hit.

For most people today, growth is happening somewhere else, for someone else. The result is a crescendo of frustration.

The accompanying chart shows relative rates of recovery in Canada for capital and labour, and for top earners and others, since the recovery began. The most rapid post-crisis improvement has been enjoyed by Canada’s primary stock market, the Toronto Stock Exchange. Although it hasn’t yet surpassed its 2008 record high, the TSX has risen 81 per cent since 2009. Canadians, as a group, are a lot richer: The value of equity is up by $2-trillion since 2009. Profits have been rising faster than gross domestic product and GDP growth has outpaced wage growth since 2009. (If you double click on this chart, you can see it in a larger format.)

RelativeREcoveryMinusMedianWage

 

Within the wage share of the economy – which includes everyone from chief executive officers to servers – only the average top-1-per-cent earner saw enough income growth to outpace inflation between 2009 and 2011. (Statistics Canada hasn’t yet published 2012 data for top earners.) The further down the income ladder you go, the smaller the income increase. Average incomes have grown more rapidly in Ontario than Canada-wide for top earners and the bottom 50 per cent alike; but so has inflation. (The consumer price index grew by 9.3 per cent in Ontario since 2009, 8.3 per cent Canada-wide.)

Hourly wages provide a more up-to-date assessment of recovery. In Ontario – where the minimum-wage debate is raging – the average industrial wage (everyone from bosses to barmaids) increased by $1.87 an hour from 2009 to 2013, an 8.2-per-cent rise. The minimum wage rose by 75 cents (7.9 per cent), but that increase happened in 2010. Inflation has since stripped away its purchasing power.

The 2008 financial crisis brought income inequality to the centre stage of public discourse. Talk of curbing the rising share of top-level incomes has been likened to threatening class warfare. Everyone agrees there is no easy solution to replacing the good jobs, wages, benefits and pensions lost in recent years. Raising the minimum wage is, then, perhaps the most acceptable and ready measure on the menu of ways to reduce income inequality, while materially improving the lives of some people. Bonus points for not costing the taxpayer more.

Ontario raised the minimum wage by 75 cents in each of 2008, 2009 and 2010 – right through the recession – but then stopped. The longer you leave something unchanged, the hotter the debate to change it.

Since 2010, the debate itself has changed. It’s changed most over the past year, in the wake of accelerating wildcat strikes by unorganized fast-food and retail workers in the United States. It’s changed during the course of a six-month study of the minimum wage in Ontario.

Talk has turned from minimum wages to living wages. A growing share of workers are finding themselves in jobs at or near the legal minimum; jobs that are not a stepping stone to something else, but their meal ticket for the foreseeable future. In the United States, the people on the street say they need $15 an hour. In Ontario, the target is $14.

Why $14? We explain in the Canadian Centre for Policy Alternatives paperMaking Every Job a Good Job, where we argue that the target value for the minimum wage should be 60 per cent of the average industrial wage ($14.75), a goal to be achieved by regular increments of 75 cents. (If we had continued to raise the minimum wage since 2010 by 75-cent increments annually, we would have reached $14 next year.)

Bold, yes, but less dramatic than the path trod by Ontario Progressive Conservative Premiers John Robarts and Bill Davis, who quadrupled the minimum wage from 1961 to 1984.

Perhaps a generational change is afoot. Certainly momentum is escalating.

U.S. President Barack Obama announced last week that he will use his executive powers to raise the federal minimum wage by 40 per cent, to $10.10, for government contractors. In 2013, five states raised their minimum wage. Thirty more will do so in 2014.

Ontario announced last week that the minimum wage will rise to $11 in June and that it will tie annual increases thereafter to inflation, integrating the key element of predictability that Premier Kathleen Wynne hopes will “depoliticize” the minimum-wage issue.

But the issue is unlikely to go away yet, for four reasons:

  • The provincial “solution” locks in the minimum wage’s purchasing power in 2010, the time of the last increase. Inflation adjustment is likely not enough. Future increases of 13 cents an hour or less won’t cover rising housing and transit costs. Cue more agitation.
  • A growing body of evidence shows that raising the minimum wage can be good for employers too (improving productivity + reducing recruitment costs = better bottom line), and has less impact on job loss than we thought.
  • Raising the minimum wage could trigger more business. Improving the purchasing power of those who spend every penny they make could boost the economy, from the bottom up. Remember: Employers don’t create jobs, customers do.
  • 2014 is an election year in Ontario. The Progressive Conservatives’proposal to make the province Canada’s first to adopt “right-to-work” (-for-less) laws is sure to ignite debate about how to split economic growth between profits and wages.

Making sure the minimum wage doesn’t stray far from 60 per cent of the average wage is smart policy, and an emerging objective in many nations. It’s just one way to tackle market-driven inequality, but a potent signal that governments agree: Everyone’s work contributes to economic growth, and everyone – including the lowest paid – should benefit from it.

 

Enjoy and share:

Comments

Comment from Purple Library Guy
Time: February 23, 2014, 6:33 pm

Ultimately, though, as long as we continue to operate under a free trade regime, there’s a problem. We will not in the end be able to pay people high wages if we produce nothing that we can sell to get the money for those high wages. If we import all our nice stuff, something will have to give eventually.
Sooner or later we either collapse to third world status or we institute some trade barriers and pursue domestic industrial production.

Comment from Brandon L
Time: March 24, 2014, 10:08 am

“Why $14? … (If we had continued to raise the minimum wage since 2010 by 75-cent increments annually, we would have reached $14 next year”

“Inflation has since stripped away its purchasing power”

“only the average top-1-per-cent earner saw enough income growth to outpace inflation between 2009 and 2011”

I imagine by the year is 2025 the minimum hourly wage will have to be higher then 14$/ an hour to match rising prices that is destroying the very fabric of society! …. frankly I have learned the hard way wages are worthless for living and I want prices to collapse, I am willing to work the wage I have or even 1 dollar a day if prices matched, and the average common man was able to enjoy a quality of life only for those whose wealth nominally matched. I dont want ever-increasing prices and hoping for the good inflation (wagws beating prices). I want prices too stop rising and retreat ie decrease from these levels.

Comment from Brandon L
Time: March 24, 2014, 10:28 am

Those who support rising prices will risk a future 1-100 years eventually if inflation outstrips peoples wages/incomes especially the growing poor will want & cause deflation. Those who successfully supported and argued for the monetary policy advocated by Keynes saw workers experience rising wages from less then a 1$ post-1930s, the poor enjoyed rising wages that beat prices leading to the middle class. Those who worked under deflation wages of the late 1800s & pre-1930 were overjoyed to see higher wages even if prices increased, their kids were overjoyed, pumping gas could pay tuition for a semester at great public or private schools. Wages & prices matched causing the middle class.

That link is breaking because if we Canadians get the 14$ hourly wage; however, how long will the increase last in purchasing power for the common man? before another increase is needed? when does the need stop? Average Canadians do not want to see the minimum wage ever past 20$ because ridiculous overactive insane prices

Comment from Brandon L
Time: March 24, 2014, 10:40 am

Do you not see an issue with prices rising, the fact only the top1% are benefiting with standards of living the common Canadian wants, and the only solution is higher wages (cost-push inflation, rising wages fin turn can help fuel inflation. in turn rising prices and the virtuous cycle) because of a ridiculous fear of deflation? Ask yourself what if you do not get the good inflation but only higher prices equals a devastated lives

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