The minimum wage increase the Ontario government announced last week was long overdue, but it was a more equitable, long-overdue adjustment than the one announced in May by the federal government. Ontario has chosen the path of broad consensus: forcing the hundreds of thousands of workers earning minimum wage to earn more if they want a better life, and driving up aggregate economic activity in the short term to do so. The federal government was utterly inconsistent in its approach to minimum wage. Instead of rising in proportion to the inflation rate, federal minimum wage remained static at $10.25 for three years – and then, for good measure, declined last year by two Canadian cents to $10.15. Making no adjustments in keeping with the inflation rate is precisely the wrong approach to raise wages to bring people out of poverty.
Instead, Canada should introduce what is called a living wage. After a lengthy public consultation period, a report authored by F. Keith Campbell, Peter Poillon and George Toral proposes that by 2019 at least one-third of the Canadian labour force be paid a minimum wage rate commensurate with the cost of living. For example, 10 cents of every $1.00 of inflation rises need to be compensated with pay hikes for those making the minimum wage. A higher minimum wage would be of some value even when accounting for the cost of living. For instance, 10 cents of every $1 in inflation rises would require an adjustment of 10 cents per hour for adults, where the inflation rate is currently 0.0%. It is surely not difficult to expect those paid $8 to adjust their wages to conform to this. By definition, living wages measure the economic value of, and its effects on, the labour that is actually supplied.
Canadian public and provincial government are in an embarrassing position of leaning on the developed world for leadership on minimum wage. At least 20 countries and 44 provinces have introduced living wage policies – from Denmark, Finland, and Norway to Argentina, Guatemala, and the United States. Though implemented in various ways, they benefit not only those who suffer with low wages and scarce jobs, but the economy at large. Paying more to workers raises demand and leads to increased activity and profits. The human costs of inequitable pay are also a source of cost to the economy. People feel poorer and less secure. The Canadian public supports living wage policies. Other governments that have introduced living wage policies: the United States, France, Norway, and Australia. Each has seen very positive effects on the wellbeing of its workforce and economy.
And the latest evidence points out that workers in economies with higher minimum wages are also better off. Annual progress in median hourly wages, out of work since the 2008 recession, has been among the highest among advanced economies since 2010. Younger workers have fared well. Young adults who do not have a high school degree are earning the same, or more, than younger workers in advanced economies such as Sweden and Canada.
People of privilege tell us that it’s not their problem. Even politicians supporting living wage policies are told to keep their nose out of wage issues. But politics is downstream from economics. If we care about people working, that is our political responsibility. On August 7, 2018, workers from Ontario and across Canada are demonstrating for a living wage in Toronto’s financial district.
Mellisa Negm is the director of the Frontier Centre for Public Policy and is a contributor to this column