Balance needed in wage debate

Posted on February 25, 2011 in Policy Context

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Last Updated: February 23, 2011.   By Brian Macleod, Qmi Agency

People working in minimum-wage jobs are not doing so to get out of the house for a few hours, but you might think so if you subscribe to the conclusions of the Canadian Federation of Independent Business.

Its recent study, Minimum Wage: Reframing the Debate, is not persuasive enough to end minimum-wage policies.

The report mainly reiterates arguments that have been made and countered in other studies. It concludes that, rather than use minimum wage hikes to help low-income people, governments should use tax policies such as increasing the basic personal exemption and lowering personal income tax–as well as retraining programs–to help those on minimum wage.

It is, in effect, an argument to allow businesses to employ more people at lower wages, while governments pay more.

Not an easy sell for those who believe businesses should pay their staff a reasonable salary for their work as a cost of doing business.

The CFIB argues that a big jump in the minimum wage–which it defines as 10%– “forces small businesses to look for ways to absorb the cost through measures such as reduced hours, reduced training or even job cuts.”

There have been many reports arguing both sides of this, including several that contend incremental minimum-wage increases don’t result in lost jobs.

The CFIB argues that most people who work for minimum wages–which range from $8 an hour in B.C. to $10.25 an hour in Ontario– aren’t primary income earners, and most are younger so they are not necessarily supporting themselves on their wages.

This implies, however, that minimum-wage earners don’t really need the money. Why then, are more than 800,000 people across the country working for such low wages? It isn’t all beer and popcorn money.

Paying tuition or other debts, supplementing the family income, or as some do, living off minimum wages, aren’t an option for many– they’re necessities.

The CFIB says a 10% increase in the minimum wage across the country would cost between 92,300 and 321,300 jobs. This wouldn’t necessarily mean layoffs, but they could be lost through hiring freezes and slower employment growth.

Well, that depends. When the economy is suffering, governments don’t often raise the minimum wage. (For example, it was frozen in Ontario for nine years starting in 1995.) They tend to raise it when the economy is doing reasonably well and businesses can handle the increased expenses.

And the Canadian Centre for Policy Alternatives argues that higher minimum wages “can result in less staff turnover, easier recruitment, and a subsequent reduction in the costs of hiring and training new employees.”

Still, the CFIB says training programs would give people more skills, thus access to better jobs. Fair enough, but once governments pay for training programs and minimum wage earners move on, someone else will fill that minimum-wage job. And some will not respond to training, so they’ll be stuck in low-paying jobs.

Where the balance lies in all this–the tipping point for minimum wages that is counterproductive– is what really needs to be studied.

Some claim the minimum wage is a ready-made tool to lift a large number of people out of poverty. The CFIB’s report is effective in arguing that isn’t realistic, but it is not convincing enough to abandon minimum-wage increases as a policy to ensure low-skilled and untrained workers don’t see their limited purchasing power drop as inflation rises.

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