BC’s Minimum Wage: How high should it be?
At the BC NDP convention over the weekend, Opposition Leader Carole James reiterated calls for a $10 an hour minimum wage. While $10 an hour would certainly be better than BC’s current $8 an hour (lowest in the country), I’m concerned that this campaign is stuck on a round number not what is adequate for improving the livelihoods of the working poor.
CCPA reports have argued in the past that the minimum wage should put someone working full-time, full-year at (and ideally, above) the poverty line (in this case Statistics Canada’s Low Income Cut-Off). The latest stats put the LICO in 2008 at $22,171 (before taxes) for a single person living in a city larger than 500,000 people. This translates into $10.66 an hour for someone working 40 hours per week, and $12.18 per hour for someone working 35 hours per week (based on 52 weeks, assuming some of this is paid vacation).
Even these figures are arguably way too low for someone living in a major Canadian city, like Vancouver, where the cost of living (housing, in particular) is much higher. Statscan does not calculate LICOs for big cities, but based on higher housing costs alone (say a $500 place in a smaller centre rents for $1,000 in the city, that is an extra $6,000 in after-tax income required) this adjustment would add another $4-5 per hour.
So, back-of-the-envelope, the minimum wage should minimally be about $11 per hour, and in Metro Vancouver, closer to $15 per hour. I think I just heard some small business owners spray their coffee across their desks (sorry about that). But the reality is that lots of people making much more than that have difficulty making ends meet; the basic standard for paid work should a wage that allows the working poor not just to survive but participate in society.
Let me just anticipate the policy meme: Forget raising the minimum wage rather focus on raising consumption taxes and then redistribute that money directly to the working poor via the WTIB.
Travis, if you keep that up, you might put Stephen Gordon out of business.
Marc, I share your preference for a minimum wage above $10, but not your concern about the campaign for $10.
Based on the above information, I am not sure whether BC’s minimum wage should be $10.66, $12.18 or $15.00, or whether Vancouver should have a higher minimum wage than the rest of the province. But I am certain that BC’s minimum wage ought to be more than it is now.
“Ten dollars” is a compelling target not only because it is a round number, but also because it is in line with other provinces. Raising BC’s minimum wage by 25% from $8 to $10 would significantly help low-wage workers.
Achieving $10 would not stop progressives from pushing for more. Indeed, a successful campaign for $10 could build political momentum toward further increases.
I share Marc’s concern that $10 is not enough to live on, and I would like to see $15. But the problem is that the issue of miniumum wages has been used politically by the Can. Fed. of Ind. Bus. to build support for their organization. Instead of seeing the minimum wage as a cost imposed by government, it needs to be seen as a wage increase for the customers of the businesses who employ minimum wage workers. Since the number of customers exceeds greatly, the number of employees it should be a no brainer. But CFIB have been very effective in selling their view, which also appeals to economists who think unemployment is caused by the unemployed asking for too much money.
The best argument for social democracy is that it allows small business to take on and keep employees. Instead of having to compete with big business on pay and supplementary employee benefits, universal government programmes cover child care, dental benefits, student loans, social housing etc.
The class war waged from above that Ralph Miliband used to talk about has shut down dialogue with business on these issues. So the avenue open is to mount campaigns such as the $10 minimum, and it can be effective if it wins hearts and minds.
My preference has always been to set the minimum wage as a percentage of the median or average wage, such that it automatically escalates. Since 50% of median is widely used as a poverty line, I’d go for that – and it gets you to where the dollar figure should be as well.
Andrew, there are other ways to make sure that the minimum wage automatically grows over time – just index it to something relevant. Two jurisdictions in Canada are already doing it: in the Yukon, the minimum wage is set to increase annually with the rate of inflation, while in Alberta (of all places!) it increases by the same percentage as the average weekly wage in the province.
As an aside, given that median wages in Canada stagnated in real terms over the last 25 years or so, and actually fell in BC by about 11% among full-time, full-year workers, I wouldn’t be so keen on tying the minimum wage to the median. Indexing to CPI inflation seems like a better deal. It would be even better if we indexed to average wages (which grew in real terms since the 1980s).
I know you’ll probably toss out the Card n’ Kreuger study and shoo me away, but I would be willing to wager that increasing the minimum wage by 87.5% would have some serious employment effects. Sure, it’s great for people who keep their jobs. But it doesn’t help the working poor who will be even poorer because unemployment has suddenly shot up in BC.
Plus, a lot of those minimum wage jobs are in retail, which has really thin profit margins. You almost double the minimum wage and you can bet everyone (the poor and the rich) will be paying more at Safeway and Walmart for their groceries.
Don’t push your luck. Stick with the $10 campaign for now.
“everyone (the poor and the rich) will be paying more at Safeway and Walmart for their groceries.”
The poor could afford it because they will be 87.5% richer then before.
The rich could also afford it because they are rich. See it is an income transfer from the rich to the poor.
On the other hard, doing this with income tax and a guaranteed annual income might be better because you could better control who pays the cost to not hit the middle class so hard.
Thanks for the comments, all.
David, I’d agree with you in that we could not do this overnight. We actually missed a golden opportunity to raise min wages during the expansion, and could easily be at the levels I propose. But no. So I’d phase in increases — as others have pointed out, any increase is a good increase at this stage.
Also, David Green and Michael Goldberg did an empirical study on minimum wages for CCPA, now dated at 1999 — their key finding was that there was a small employment impact to raising the min wage, but the total wage bill going to low income people rose.
Darwin, you make the point that income transfers should be part of the solution and I agree. In fact, a guaranteed annual income at a high enough amount would also put upwards pressure on wages in the bottom of the distribution such that a legislated hike would be much less relevant.
A lot of economists like the simplicity of just transferring money to the poor. I have a lot of sympathy for that position, but I think the political obstacles around perceptions and potential backlash make that unlikely. Plus, I like the idea of the labour market doing more of the heavy lifting, as people make a decent living contributing to society through work, rather than “living off society” by receiving a “handout”.
Ultimately, the minimum wage is a fairly dull instrument. It just sets the floor for what people get paid. Some means of facilitating the unionization of the (low paid, private) service sector should be a bigger part of the way forward to compress the wage distribution.
Proactive enforcement of the existing minimum standards legislation would also be a good idea. It would be hard for the Chambers to come out against the rule of law. Of course their response would be to water down the MS legislation.
Back in the day, Samuel Gompers used to argue quite cogently and passionately AGAINST a minimum wage on the grounds that it could become a “standard” and that at any rate enforcement would be up to an unreliable government. What he argued for was organization of the workers to enforce their own economic demands collectively. An $8 minimum wage and even a $10 dollar minimum wage are just the kind of sops that Gompers warned about.
Gompers, of course, was no saviour and it’s not guaranteed that an absolute opposition to a legal minimum wage is necessarily always a strategic asset. But the BC Fed, the CLC, and in the U.S., the AFL-CIO seem to take the legislated panacea as such an article of faith that maybe it’s time to call it what it is: going through the motions.
“Also, David Green and Michael Goldberg did an empirical study on minimum wages for CCPA, now dated at 1999 — their key finding was that there was a small employment impact to raising the min wage, but the total wage bill going to low income people rose.”
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Marc, I recall that study. Has the BC office of CCPA thought about updating it? I wonder if David Green would still be interested in advocating for a meaningful wage increase. In recent years his attention seems to be on supporting the BC carbon tax.
From my own reading of minimum wage analyses I think it’s clear that an immediate rise to $15 would generate significant disemployment impacts. I believe that even a move right now to $10 might need to be introduced in two stages, say nine months or a year apart if disemployment, impacts were to be minimized. I don’t think the literature on minimum wages really covers this topic, that is, rates of adjustment which will avoid significant job losses.
This is the problem with leaving the minimum wage untouched for so long. It becomes harder to make the appropriate adjustment in levels in any short period without generating other problems. I therefore stongly agree with those who say the minimum wage legislation needs to include annual adjustments based on either the CPI or average/median wages.
Or you could raise the interest rate to have the rate of inflation come in line with the minimum wage, otherwise next year it would have to be increased, and the year after that, and oh yea the year after that till its almost 30 an hour.
Why not? Since we can create indefinite funds, why save, make the minimum wage a million an hour, seriously lets really create prosperity. Excuse my satire.
We need a higher rate of interest and the minimum wage we already have would be sufficient. The only reason the minimum wages doesn’t work is because of inflation otherwise it would still be 8$. I remember a brief period where people on minium wage at 8$ kept up with inflation. I wonder what happened? A steady decline in interest rates the last couple of years.
Also with current deficits its unsure that any increase in the minimum wage would be spent in the economy, and not saved to pay off future taxes and debt espcially here in BC.
The cost of running a small business in BC would increase substantially after everything is said and done, equaling in more jobs being sent offshore. Bottom line jobs go where there are less taxes and regulation and a naturally weak currency. Always have Always will
As a senior living on a fixed income, with no tax write offs, a increase in pensions, would just mean the government would just take it back in taxes. However, low income families need a hell of more than $8.00 an hour to survive. That wouldn’t even cover the booze bill of a, government official. Many officials, make more in a day, than, a low income family, has to live on for a month. However, greed and corruption is how this country is ruled. The HST, is just for the rich and famous.
@Lil
8$ an hour in any year before the 1970, could support a family. All Im saying is instead of creating new dollars to chase more goods. In your lifetime, you have to admit prices have steadily & incrementally risen. This underlying problem is inflation, the reason 8$ an hour is useless in today’s modern era is a reflection of our increased cost of living over a period of years. Im arguing raising interest rates to such a level for an extended period to lower your cost of living thus making 8$ more valuable.
To anyone who wants to deny minimum wage increases affect labor because small owners to corporations because as the cost of employing increases will create less jobs or hours worked. Secondly small owners(mom&pops pizzeria) when compared corporations(Dominoes) react in uncertain manners to minimum wage increases since they have significant less resources, reducing hours & jobs.