The Politics of Raising the Minimum Wage

After two decades of increasing inequality and wage stagnation throughout the Canadian economy, low-income workers and their representatives in government are beginning to fight back. Ontario NDP MPP Cheri DiNovo and federal NDP MP Peggy Nash have recently introduced private member’s bills raising the minimum wage to $10 an hour.

This comes at a time when Liberal and Conservative MPPs in Ontario recently voted themselves a 25% pay increase. Compare this to minimum wage workers, who in real dollars receive about 20% less than they did thirty years ago, according to Statistics Canada.

Or compare it to the average top CEO in Canada, who earned as much by the afternoon of January 2, 2007 as a full-time minimum wage worker will make in the entire year. In the United States, the story is similar - if the minimum wage had risen at the same rate as CEO compensation since 1990, it would now stand at $23.03 an hour, according to the Institute for Policy Studies.

While federal minimum rates were abolished in 1996 by the Liberal Government of Jean Chretien, the minimum wage in places like Ontario is now $8 an hour ($7.50 for workers under 18), and hadn’t been raised at all during the eight years of Conservative rule from 1995 to 2003, further losing its value to inflation.

For those who work full-time, this means $16,640 a year, an income well below the poverty line. Just to match this, a full-time worker in Canada would have to make - you guessed it - $10 an hour. Those who make under this rate constitute 24% of the workforce throughout the country and a total of 1.2 million workers in Ontario.

Big Business dislikes the idea of paying a higher minimum wage. Relying on outdated, theoretical labour market models, some economists believe that it will only force employers to hire less, thus hurting the very people it is supposed to help.

But others have shown that an increase in the minimum wage has a minimal, or even a positive effect, on employment. Labour economist Hugh Mackenzie notes: “The impact of minimum increases is generally so small relative to that of other changes in the economy that no impact is evident comparing before-after employment levels.”

In fact, a major 2004 study done by the Fiscal Policy Institute based in New York analyzed the impact of increases in the minimum wages in certain U.S. states over the past ten years. As their final report said, “Total employment in the higher minimum wage states increased by 6.2 percent from January 1998 to January 2004, 50 percent greater than the combined job growth of 4.1 percent for the other states where the (lower) federal minimum wage prevailed.”

This is mainly because businesses don't create jobs when wages are lower. They create jobs when they have customers at their front door, and it is easier to do this when modest-income and working class consumers have more money in their pocket to spend.

One might humbly ask why the business community, who support polices like zero inflation, public sector cutbacks, and free trade (which continues to export thousands of manufacturing jobs overseas every year), all of a sudden seem so concerned about the plight of the unemployed?

This poses a related question: why are minimum wage workers the only people on the planet who create unemployment when their wages increase? By this logic, shouldn’t employers have to hire less when anyone gets a pay raise, like when the incomes of corporate managers and executives skyrocket, as they have been for the past twenty years?

The free market seems to do a good enough job at creating unemployment on its own. It doesn't need any help from the government, whose economic policy makers at the Department of Finance and at the Bank of Canada insist on a certain level of unemployment around the 6-8% mark anyway, supposedly to keep inflation in check and real investment returns healthy.

Neo-conservative theories on the minimum wage make two seriously erroneous assumptions: 1 - that vulnerable, small businesses disproportionately bear the burden of higher wages (they don’t. 71% of minimum wage earners work in medium or large businesses); and 2 - that most employers themselves are living in squalor and on the verge of bankruptcy (they aren’t. Business profits as a share of the overall economy are the highest they’ve ever been since the Canadian government began recording this statistic).

Another misconception about minimum wage workers is that a large majority of them are teens, and therefore raising the rates wouldn’t have much effect on poverty. Although is it true that one third of minimum wage workers are students living at home, 61% of minimum wage workers are over the age of eighteen, and 27% over the age of 25, according to Statistics Canada. And even if every minimum wage worker were between the ages of 16 and 21, since when were tuition fees low, car insurance for young people affordable, and rent in places like Toronto cheap?

In fact, economists of both the Left and the Right know that a higher minimum wage puts upward pressure on low wages generally, which would benefit modest income Canadians, many of whom are raising entire families on such income.

Yet we’re not supposed to know this. We are supposed to accept the excuses of the same neo-conservative economists who promised us that free trade would protect Canadian industries and close the productivity gap between ourselves and the Americans, that high interest rates wouldn’t lead to greater levels of unemployment and public sector debt, that the privatization and deregulation of Ontario Hydro wouldn’t lead to higher electricity rates, and that years of billion-dollar cutbacks wouldn’t hurt the poor or weaken social programs.

I rest my case.