Feb 10, 2011

Raising the minimum wage: not if but how much and how fast


While lone voices from the business sector still oppose a minimum wage increase (as in this article in The Province), the minimum wage debate in BC has now firmly shifted past the question of whether we should raise it or not. Virtually all leadership contenders for both the BC Liberals and the BC NDP have publicly expressed support for a minimum wage increase in the near future.

With our minimum wage frozen at $8 per hour for nine years and three months now, it was about time!

The real questions in play now are how much to raise the minimum wage and over what timeframe. Different numbers have been thrown around in the media — anywhere from $9 per hour to $10 per hour immediately, with future increases up to $11 or even $12 proposed by some of the leadership candidates. Nice round numbers certainly make the math easier, but should we really be picking a number out of thin air?

In a recent piece published by the CCPA, we propose that the BC government develop a clear rationale for setting the minimum wage and stick to it. This requires making a decision about what it is that we want to achieve with the minimum wage and then setting it appropriately so that it meets the stated goals. We also recommend that the rationale be poverty reduction:

We propose that a single person working full-time year-round should earn (at least) enough to live above the poverty line. The idea that someone working full-time, full-year should be able to get out of poverty is a clear, transparent policy decision that should determine the minimum wage in BC and in other provinces.

This should be a pretty easy rationale to get behind — few people will argue in favour of maintaining a group of working poor.

Equally important is to legislate regularly scheduled increases tied to inflation, to ensure low-wage workers do not face what amounts to a pay cut as a result of rising prices.

Since poverty reduction is the goal, the minimum wage should be indexed to the consumer price index in order to maintain the purchasing power of workers.

The next question to settle would be what the appropriate poverty line measure is, and this is a legitimate question that I’d like to debated. Because I want working poverty to become a thing of the past in my province, I support picking the broadest measure of the poverty line so that no worker in any community would be left behind.

The most appropriate measure of the poverty line in this case is Statistics Canada’s before-tax low-income cutoff (LICO) for a single individual with no dependents living in a large city—which was $22,229 in 2009, the latest published LICO calculation. This is equivalent to a minimum wage of $11.11 per hour (at 40 hours per week, 50 weeks per year).

Recognizing that going from $8 to $11.11 is a big jump, I would recommend staged increases to get the minimum wage to that level.

How much can business afford? Considering that they’ve been getting reductions in the minimum wage (in real or inflation-adjusted terms) over nine years now, they should be able to manage an increase that — at a minimum — brings us back to the real value of the minimum wage when it was set. I calculate that if we had annual April 1st increases to the minimum wage based on last year’s inflation in BC starting in 2002, this April we’d be setting the minimum wage at $9.48 per hour. So moving to $10 immediately would reflect a very small increase in the real value of the minimum wage compared to its 2001 level.

A government that’s serious about reducing poverty in this province, would raise the minimum wage to $10 immediately and then commit to 50 cent increases every six months until we reach the appropriate level to cover the LICO income (note that it’s a moving target). At that point, inflation-based annual increases would be all that’s required to maintain the value of the minimum wage. Such a policy will benefit employers by providing certainty and allowing them to plan ahead for labour costs.

Setting a poverty-based rationale for the minimum wage is not the only possibility. The minimum wage can also be set with inequality considerations in mind, for example by setting it at a certain percentage of the average (or median) industrial wage in the province, and then annually index it to keep up with increases in the industrial wage. Such a policy would embody the notion that we, as a society, would not allow any workers to get too far behind the rest of us in terms of earnings.

Arguments can be made for a number of other policy rationales as well, and while I personally favour poverty reduction as a rationale I’d welcome a broad public debate on these issues. I’m curious what the leadership contenders think.

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