Facts don’t sup­port B.C.’s min­i­mum-wage hike

The Province - - EDITORIAL - Charles Lam­mam and Hugh Mac­In­tyre

As the say­ing goes, the road to hell is paved with good in­ten­tions. While the say­ing may not al­ways be true, good in­ten­tions alone aren’t enough to jus­tify govern­ment pol­icy. Ac­tual real-world ev­i­dence mat­ters. De­spite be­ing well-in­ten­tioned, rais­ing the min­i­mum wage isn’t an ef­fec­tive way to help the work­ing poor.

Pre­mier John Hor­gan nonethe­less re­cently an­nounced plans to raise the min­i­mum wage by 34 per cent over four years from its cur­rent hourly rate of $11.35 to $15.20 by 2021. Hor­gan made clear his good in­ten­tions when he spoke of lift­ing “peo­ple out of poverty.” We cer­tainly ap­plaud this sen­ti­ment and share the pre­mier’s goal to re­duce poverty. Un­for­tu­nately, the ev­i­dence shows that rais­ing the min­i­mum wage is a flawed strat­egy for achiev­ing this crit­i­cally im­por­tant so­cial ob­jec­tive.

For starters, the min­i­mum wage does a poor job of tar­get­ing the peo­ple we want to help — the work­ing poor. Ac­cord­ing to data from Statis­tics Canada, the vast ma­jor­ity of B.C.’s min­i­mum-wage earn­ers don’t live in poverty. In fact, 89 per cent aren’t part of a low-in­come house­hold.

While this may sound coun­ter­in­tu­itive, it makes sense once you re­al­ize that the over­whelm­ing ma­jor­ity of min­i­mum-wage earn­ers aren’t the pri­mary or sole earner in their house­hold. They’re mostly teens or young adults work­ing their first job or work­ing part time while in school. In B.C., 54 per cent of min­i­mum-wage earn­ers are un­der age 25 with the vast ma­jor­ity of them liv­ing at home with rel­a­tives.

An­other 19 per cent of all min­i­mum-wage earn­ers live with an em­ployed spouse who of­ten earns more than min­i­mum wage. So even among older min­i­mum-wage earn­ers, they tend not to be the sole bread­win­ner in the house­hold.

Thank­fully, the im­age of a sin­gle par­ent strug­gling to get by on min­i­mum wage is pretty rare — only 2.1 per cent of min­i­mum-wage earn­ers are sin­gle par­ents.

The fact that the min­i­mum wage in­ef­fec­tively tar­gets the work­ing poor helps to ex­plain why Cana­dian re­search finds that past hikes have failed to re­duce poverty. To the ex­tent that some peo­ple do gain, 70 per cent of the in­come gains go to non-poor house­holds.

In fact, one study found that rais­ing the min­i­mum wage can ac­tu­ally in­crease poverty. The rea­son be­ing job losses as­so­ci­ated with a higher min­i­mum wage are dis­pro­por­tion­ately felt by the poor. Specif­i­cally, 47 per cent of the job losses are felt by the poor or the near poor, those with in­comes less than 50 per cent above the low-in­come thresh­old.

But the prob­lem isn’t just that the min­i­mum wage in­ef­fec­tively tar­gets the work­ing poor, it also makes it harder for less-skilled work­ers in our so­ci­ety to find work. When em­ploy­ers are forced to pay higher wages to young work­ers with lit­tle work ex­pe­ri­ence and skills, they tend to cut back on the num­ber of peo­ple they em­ploy, the hours they’re will­ing to pay for work and other forms of com­pen­sa­tion such as job train­ing and/or fringe ben­e­fits.

In some cases, they pass along the higher labour costs of the min­i­mum wage to their cus­tomers in the form of higher prices, which, per­versely, has a dis­pro­por­tion­ate im­pact on the poor.

For­tu­nately, there are bet­ter pol­icy op­tions avail­able to help the work­ing poor with fewer neg­a­tive con­se­quences. The govern­ment could help the work­ing poor by top­ping up their wages.

The Work­ing In­come Tax Ben­e­fit, a fed­eral pro­gram, rep­re­sents one im­por­tant ex­am­ple. First im­ple­mented in 2007, the WITB pro­vides a cash sub­sidy to low-in­come work­ers that rises with in­come up to a max­i­mum amount. At a cer­tain point, the WITB be­gins to phase out with ad­di­tional in­come, but only grad­u­ally. The cru­cial ad­van­tage of the ben­e­fit is that it more ef­fi­ciently in­creases the in­come of the work­ing poor with­out mak­ing it harder for em­ploy­ers to hire less-skilled work­ers.

When it comes to help­ing the work­ing poor, good in­ten­tions aren’t good enough. Ev­i­dence should guide pol­icy. The fact is rais­ing the min­i­mum wage doesn’t pro­vide the de­sired re­sults.

Charles Lam­mam is di­rec­tor of fis­cal stud­ies and Hugh Mac­In­tyre is se­nior pol­icy an­a­lyst at the Fraser In­sti­tute.

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