Social Policy in Ontario

Raise a glass today in honour of the hard-working souls who flip burgers, serve double-doubles and clean hotel rooms. In Ontario, they just got a decent raise: the minimum wage goes up 75 cents, to $10.25 an hour. That makes Ontario’s minimum the highest in Canada – and today marks the first time the bottom rung of our labour market passes that $10 threshold.

The new benchmark represents the completion of a promise made by the McGuinty government in 2007. Since then, minimum wage workers in Ontario have pocketed 28 per cent in wage increases. At the time, Queen’s Park was feeling pressure from a feisty grassroots campaign, led by the Toronto Labour Council, for a $10 minimum. Now their hope is a reality (even if it took three years to get there).

The Ontario move is worth celebrating. But just as encouraging, other provinces are joining the effort to boost the fortunes of the lowest paid. Newfoundland’s minimum wage will reach $10 this July, as will New Brunswick’s next fall. Most other provinces, rich and poor alike, are already at $9 or higher.

On average, Canadian minimum wages have increased 20 per cent in the past three years. That’s significantly faster than inflation – hence, boosting the real purchasing power of minimum wage workers. But it’s not just them who benefit. Many other low-wage jobs are paid at specified increments above the minimum wage, so those workers also get a raise.

This “trickle up” effect helps explain recent increases in real average hourly wages in Canada. In the three years ending in 2009, average wages (after adjusting for inflation) grew by 4 per cent. That’s not a lot – but it’s the best wage performance for Canadian workers since the 1970s. The unheralded revitalization of minimum wage policy is a big reason why.

This rebound reverses the trend of previous decades. In 1976, the average minimum wage in Canada was $2.65 an hour. At today’s consumer prices, that’s the equivalent of almost $10. But then governments allowed minimum wages to erode, falling far behind inflation. By 1991, the real value of minimum wages had been cut by a third (to less than $7 an hour, in today’s terms). And there they languished, for another decade or more.

At that time, many economists believed that minimum wages create unemployment, by “interfering” with market mechanisms and preventing “less productive” workers from getting a job. But it turned out those economists were wrong. A new generation of minimum wage researchers discovered that the disemployment effects of graduated minimum wage increases are negligible (even in nasty industries such as fast-food restaurants). And the spinoff benefits of higher minimums (including stronger labour-force attachment by marginalized groups, and pressure on low-wage employers to boost productivity) are considerable.

But not all provincial governments have rediscovered minimum wage religion. Since taking office, B.C. Premier Gordon Campbell has taken his province from champ to chump in the low-wage sweepstakes. In 2001, B.C. had Canada’s highest minimum wage ($8). Today, it’s the lowest – still $8. In that time, inflation eroded the purchasing power of B.C. minimum wage workers by almost 20 per cent; Mr. Campbell made things worse with a new super-low minimum of $6 for new hires.

In free-market theory, this should have made B.C. a nirvana for low-wage workers (especially young people). In reality, B.C.’s tight-fisted approach didn’t stop youth employment from falling faster, and the youth unemployment rate from rising further, than any other province as the recession hit in 2009. So much for the virtues of a flexible “free market.”

The recent rebound in minimum wages still hasn’t fixed the damage from decades of neglect. In real terms, the average minimum is still a dollar lower than in 1976. And relative to average hourly productivity, minimum wages have continued to shrink. Today’s minimum wages equal just 15 per cent of the output produced by the typical Canadian worker in an hour’s work. Therefore, to help low-wage workers capture the same share of output as they did in the 1970s, minimum wages should be increased to $12.50 an hour. To bring low-wage workers up to the poverty line, it should go higher.

So let’s keep the raises coming for the lowest paid among us. It’s good for them, and it’s good for the labour market.

Jim Stanford is an economist with the Canadian Auto Workers union.

< http://www.theglobeandmail.com/news/opinions/a-reason-to-celebrate-the-lowest-paid-in-ontario-just-got-a-raise/article1517697/ >