Last week, a Healthy Debate column written by Dr. Ritika Goel used a patient narrative to help support her argument that the minimum wage should be increased, from $10.25 to $14 an hour. The patient, Raj, drifted between low-wage jobs as many aspects of his life and health became more difficult.
Unfortunately, a higher minimum wage policy would probably exacerbate Raj’s employment situation, and possibly ensure that he becomes, tragically, artificially unemployable. My central criticism of the minimum wage increase is that it does not reduce poverty, and in fact makes things worse by increasing unemployment among the most vulnerable.
I wish to start by highlighting where I agree with Dr. Goel. I agree with her that living in poverty has a strong connection with worse health status. I also agree that it is critical that physicians appreciate the social determinants of health, of which income is a large contributor. However, it follows from none of these that an increased minimum wage is sensible public policy, or will increase population health.
First, minimum wage increases do not actually decrease the number of people living below the Low-Income Cut-off in Canada. It is important not to confuse minimum wage earners, as a group, with those living in poverty. In fact, in Ontario, over 80% of low wage earners (that is, those workers who could potentially benefit from a minimum wage increase) do not live in poor households, and 75% of poor households do not contain a low wage earner. Most of those working for minimum wage are teenagers seeking job skills and living with parents, or retired persons trying to keep busy or supplement pension income. Most minimum wage earners work part-time, work only for a short period, and live with parents or other family members.
However, there are people like Raj who do indeed struggle to support themselves and others with minimum wage. How would increasing minimum wage affect them? Evidence demonstrates that minimum wage legislation increases unemployment, making life even harder for people like him. Surely, many who remain employed enjoy a higher wage. But for others, instead of receiving a wage of $14, they end up with a wage of $0, and nowhere to learn new job skills.
The National Bureau of Economic Research conducted a systematic review in 2006 of 100 studies and found that over 85 of them identified negative employment effects, which were more severe among low-skilled groups. Newer research agrees with this.
When labour becomes more expensive, employers respond to incentives. Employers cut fringe benefits from current employees, or they pass costs onto consumers, which is a regressive tactic. Low-income people suffer the most from consumer price inflation. Most commonly, though, more expensive labour means that less of it will be used. This results in layoffs, or makes mechanization such as ATMs, self-checkouts, or fast-food robots more appealing to corporations.
Current estimates are that for a 10% increase in the minimum wage, employment declines about 2.5% among affected workers. In Canada, the estimate is slightly higher at 3-6%. There are presumably others who are moved from full-time to part-time work. This invokes the possibility that if the minimum wage was lower, more people might find jobs, subject to job-seekers deciding if such a wage is worth their while.
Internationally, the trend of decreased employment holds as well.
Finally, even among low-skilled workers, the minimum wage most drastically affects historically disadvantaged groups. The last time that the African-American unemployment rate was lower than that of Caucasians in the USA was 1930 – coincidentally, the last year without a minimum wage law. Since then, unemployment among African-Americans has steadily climbed and remained about double of that of other groups. Closer to home, a 1927 report from the B.C. Department of Labour explicitly stated that the goal of the minimum wage was to price Asian immigrants out of the market. Other examples abound.
Canadians display broad support for some form of a safety net. To help those who have no options, several policies are popular across the political spectrum. One option is a negative income tax. In essence, a negative income tax is a flat tax rate, followed by a tax-free cash transfer (of, say, $10 to 15 thousand dollars) to every Canadian. While tax is paid on all income, the result is that there is a guaranteed minimum income for everyone. In addition, no one pays any net taxes (because of the transfer) until a certain, higher income level – perhaps $40,000, depending on tax rate and transfer size – is reached. This policy has far fewer distortionary effects on employment, and enjoys a stronger theoretical backing.
I am hopeful that this discussion can continue in the spirit of constructing public policy that is both safe and effective. As Dr. Goel conveyed, there are many Canadians in dire need of better jobs and a steady income. An awareness of sound public policy can go a long way to assist these individuals. In this case, my heart goes out to those people who are seeking minimum wage work, and remain unemployed through no fault of their own.
The comments section is closed.
Hello Mike
It has been interesting to learn more about the negative income tax option that you and Gobi K propose. As I replied earlier it seems to provide one useful policy option to consider.
As you are aware, economic polices do not operate in isolation from the broader social, ideological, political, regulatory … realities they must operate within. In other words, policies are context sensitive. More specifically;
• How does your position reconcile with the widely held belief that minimum wages policies for are intended to protect the disadvantaged from being exploited … whether or not they live in poverty? Do you see minimum wage and negative income tax policies being mutually exclusive? What prevents these options from being considered as complementary socio-economic policies that work in tandem to protect the dignity of people as well as provide for basic income security for low to middle income individuals and families? As I assume you know, a thriving middle class is internationally recognized as essential for economic and social stability for individuals, businesses and governments.
• The analogy you draw between physics and economic theory is unfounded and I don’t think it adds anything of substance to this debate.
• What relevance does a racist quote from 1927 have in 2014? ‘Least we forget’ … the social context of the ‘roaring 20’s’ spawned the ‘hungry thirties’, the Third Reich … I hope our collective intent is more noble than implied by this offensive quote … time will tell.
• The reference I used provides a longitudinal international comparison of wage policies adopted in 185 countries over an extended period of time before, during and after the ‘great recession’. The ILO web page notes that: ‘The International Labour Organization (ILO) is the only tripartite U.N. agency with government, employer, and worker representatives. This tripartite structure makes the ILO a unique forum in which the governments and the social partners of the economy of its 185 Member States can freely and openly debate and elaborate labour standards and policies.’
• The rapidly growing income gap is not ‘rhetoric’ – it is a fact. How we individually and collectively respond to this fact is the real issue to be debated. You are entitled to your own personal views … as is everyone else … to what useful end? Our collective challenge lays in developing a policy framework that will balance the needs of individuals, businesses, governments… this will require much more than a few narrowly interpreted policies to resolve …
I wondered where Mike Craig was coming from until I saw that he was connected with AIMS. The AIMS analysis and the Fraser Institute analysis are seeped in neo-conservative/neo-liberal ideology. On PEI, 81% of people who suffer from food insecurity (second highest per capita in Canada after Nunavut) are workers. We need a living wage but employers can’t bear the brunt along. Governments have to do their part as well.
Hi Mary,
I appreciate your skepticism. This is why when writing the column, I was careful to ONLY include sources that come from either Statistics Canada or peer-reviewed academic journals. I have lived in the Maritimes all my life and am well aware of the conditions here. It is no coincidence that the poorest provinces have made the worst policy choices.
Mary, something else to consider is that next week I am publishing a column that runs directly in opposition to AIMS’ official stance.
A useful international comparison study you may wish to consider was compiled by the International Institute for Labour Studies in Geneva. Although much broader in scope, refer to p 45 to 71 relating to the role of minimum wages in various economies and the importance of establishing a balanced minimum wage policy that provides a social safety net without creating a disincentive for employment.
This key source concludes that a balanced minimum wage policy is shown to be one key element for maintaining a healthy middle class which in turn is essential to a healthy economy and stable social structure.
World of work report 2013: Repairing the economic and social fabric / International Labour O” ce,
International Institute for Labour Studies. – Geneva: ILO, 2013
ISBN 978-92-9-251017-6 (print)
ISBN 978-92-9-251018-3 (web pdf)
ISSN 2049-9272 (print)
ISSN 2049-9280 (web pdf)
International Labour O” ce; International Institute for Labour Studies
Hello Mike
It would be interesting to see if the statistics have changed post international financial system meltdown and with the growing retirement income gap we read about with our aging population and record debt levels at all levels of society? Although historical data may provide a useful background on how we got to todays situation we also need to look at the specific statistics from todays unemployed/underemployed/low income/poverty level/ and employee composition in minimum waged positions and project trends forward when making such assessments.
It would be interesting to see the current statistics relating to this topic that objectively characterise the situation in a very different economic and social context.
Hi Andrew,
Thanks for your interest in my column. I am going to take some time to think of a fair answer to your concerns.
I wish to make a note, however, regarding the finding ( cited here http://link.springer.com/article/10.1007/s12122-012-9139-8) that minimum wage has no effect on poverty in Canada. For Canada, such a finding holds robustly across different model specifications. However, The US data seem to disagree with this. That is, US data seem to indicate that while minimum wage still causes unemployment, it DOES seem to reduce “poverty” (they measure this by counting the number of people living below a certain line, but not how far below). I am concerned, though, that this is accomplished by “taking” the wages of those formerly employed who are now laid off. That is, some poor people are driven upward and “escape”, causing the reduction in the poverty statistic, while others are driven even further downward through unemployment (which is consequently not reflected by a simple count of people living below a certain income). In visual terms, the minimum wage could be creating a bimodal distribution of incomes among the poor.
I will consider both your comments further and try to come up with a more appropriate response!
Hello Mike
I did look at the study and noted that it used data data from the Survey of Labour and Income Dynamics (SLID) for 1997 to 2007 (Pre- International Financial System Collapse) which does not consider the significant impact on the structure of the labour market. Secondly, the conclusions were also generated through the creation of a simulation model (with embedded assumptions regarding relative impacts of variables that are not easily verifiable from the summary information) and I question if the conclusions reflect embedded methodological biases in the simulation). Thirdly, there has been a fundamental shift in demographic, economic and societal characteristics that are not reflected in older data-sets. Therefore I provided the international study across developed, mid level and developed economies with longitudinal data sets before and after the economic financial crisis that remains a burden today.
Finally, I see this as needing a nuanced and balanced policy versus a polarizing policy that reinforces the rapidly widening gap in incomes. In other words your opinion piece seems to advocate for a Canada without a social safety net underpinned by a basic minimum wage that has been shown through objective international comparisons to be of considerable benefit to social stability, economic prosperity through the stabilization of the middle class.
Therefore I would suggest that we need to focus on when is the minimum wage too low or conversely too high to be an effective policy that balances the need for a social safety net while not becoming a strong disincentive to work or too large a burden on the overall economy and therefore counter productive.
The facts indicate that most higher income developed countries set their minimum wage higher than we currently have in Canada.
Hi Andrew,
I believe MIke was advocating for a negative income tax instead of a minimum wage as the social safety net in Canada.
Former Senator Hugh Segal writes a compelling case for a Guaranteed Annual Income that is worth a read: http://reviewcanada.ca/magazine/2012/12/scrapping-welfare/
Switzerland is considering it: http://pri.org/stories/2013-10-14/2750-month-every-adult-guaranteed-switzerlands-considering-it
I think this option should be included in any debate.
Hello Gobi K
Interesting articles and useful approach to consider in more depth – thanks.
I agree with your premise the essential challenge no matter what method is used is to establish a floor for income to ensure people are able to afford the basic necessities of life in a dignified manner. Our country has all the necessary resources to accomplish this with either approach being discussed here. This is a core underpinning for advancing our economy, social, educational, corrections and health improvements. We also need to keep in mind that inaction is a costly choice if we do nothing and slide into a negative spiral with the much higher social and economic costs to us all.
Hi Andrew,
Several aspects of your reply trouble me. First, the minimum wage is fundamentally not a redistributive policy (http://muse.jhu.edu/login?auth=0&type=summary&url=/journals/canadian_public_policy/v035/35.3.mascella.pdf), as I have indicated for the reasons in my column above. If you truly want to help the poor, the minimum wage is quite a blunt policy instrument that is not even aimed at the right people, for the most part. Therefore, even by your own values, you should look for a different policy. I advocate the negative income tax. By these metrics, and considering your call for a robust safety net, I would submit that my proposal for a safety net is more comprehensive than yours is.
Next, the minimum wage was never even intended to be a “help the poor” kind of policy by some of its major architects. Originally, white labour unions wanted a way to exclude black and Asian migrants from the labour force in the United States, Canada and South Africa, so they lobbied for a wage floor. The leader of the American Federation of Labour said ““The Caucasians … are not going to let their standard of living be destroyed by Negroes, Chinamen, Japs or any others.” Another Congressman of the era complained about the “cheap colored labor” that “is in competition with white labor throughout the country.” Sources for all these at http://dailycaller.com/2014/01/16/the-racist-history-of-the-minimum-wage/ .
Furthermore, you are absolutely correct to question the biases embedded in any study. This is why I am skeptical of the study you cited, as the organization is highly compensated in order to produce certain research conclusions. I would never expect to convince you of something using only a Fraser Institute study, and so I hold you to the same standard.
I also struggle to appreciate how the post-financial crisis era should affect our policy choice. For instance, it would be disastrous to try to ignore the laws of physics, simply because we think it might be fairer if they didn’t exist. Similarly, to ignore the laws of economics is to forget that despite the suffering happening today, many would be made EVEN WORSE by such a policy, whether the current situation meets any criteria of “fairness” or not.
Lastly, I often wonder about “income gap” rhetoric. I want the incomes of the poor to increase, but I fail to see how this has anything to do with *relative* comparisons to others’ income. Surely no egalitarian would knowingly advocate a policy that made *every* Canadian poorer, so long as equality increased. Put another way, I would enthusiastically support any policy that increased the incomes of the poor, and at the same time increased the income gap.
It is a pleasure to read a young person write and debate so articulately as is so clearly shown in your article as well as in your responses to the comments. I hope you continue writing as your career continues. I look forward to reading your writing for many years.
Re:
“Surely no egalitarian would knowingly advocate a policy that made *every* Canadian poorer, so long as equality increased. no egalitarian would knowingly advocate a policy that made *every* Canadian poorer, so long as equality increased. ”
I have, in fact, heard some socialists say that equality is more important than better for all. I hope that this is not a majority opinion among socialists but I have heard it.
Gerry
What about a wage increase only for companies of a certain size, or that fall into certain tax brackets based on profitability? Or what about a choice between something like a special tax for these corporations that are highly profitable to pay assistance given to their employees, a policy where those on assistance are offered full-time hours, and if they refuse then their assistance is shut-off, or perhaps just a wage increase for companies that fall into the above categories.
The author asked me if I thought society “owes” someone a living, and no I do not. What some are failing to see though is that under current law, we are indeed supplying a living to all these people, both in Canada, and the States. So all idealism aside, that’s our current situation, it is presently our cross to bear. I’d like to see some of the largest minimum wage employers absorb some of this massive assistance. I’ll tell you something else; If you did make profitable companies, especially in the food industry (think about it, you can’t outsource restaurants workers!) pick up a greater share of the tab, then I bet you’d see a real fix. Right now, there is ZERO incentive for fast food, or the Walmarts of the world to change anything. The taxpayer is literally put money right in their coffers!
Can we agree on any of this?
Well, I did go back, and look at the embedded links, and there is a lot of logic there. I guess my biggest concern though is still government assistance to the employees of highly profitable companies. Also some of those labor stats are highly questionable. For example, many minimum wage employers cap their employees at 30-35 hours regardless of their situation, increasing our debt to these unskilled workers. Also when you say these people live with others, or their parents, and sorta “don’t count”, but how much of that is a symptom, rather than a causality?
Can the author understand my concerns? It’s not that I think the minimum wage itself is an issue, but surely it takes pure denial to not admit that we are both being taken advantage of, and made to help support HIGHLY profitable business plans. My example of McDonald’s stands…$8.9b profit in 2013, and nearly $3 billion in assistance to these “workers”. It’s a problem that is spirally out of control, and I think any discussion of low wages must include some mention of this, or it becomes the ramblings of a pundit. Record profits, record assistance to employees…the author is remiss to not mention it.
Excellent piece. Thanks to helthydebate.ca for publishing it. More like this, please! Solutions to health care problems are often solved by government doing less, not more, I believe.
Mike
I would like to hear your understanding regarding the effectiveness (or lack thereof) of the program of high minimum wages in Australia where I believe they do not have high unemployment. Is there anything that we can learn for Canada from that experience.
Tom C
Hi Tom,
You are correct that Australia has a quite high (currency-adjusted) minimum wage, and appears to have unemployment similar to most comparable countries.
I am not particularly familiar with Australia’s labour market. However, the Labour Ombudsman’s website (http://www.fairwork.gov.au/pay/national-minimum-wage/pages/default.aspx/) indicates that there is a sliding scale of exceptions to the minimum wage for those workers under the age of 20, ranging from $6 up to the standardized value of $16. Teenagers are a large chunk of those affected by a traditional minimum wage, so this adjustment may keep employment up in that demographic, while also enforcing a higher minimum wage for those over 20 years of age. Other countries have adopted a similar policy. That is, it is arguably possible to “carve out” different minimum wage levels based on the likely demographics of each group, and still achieve a bit of a redistributive effect without significantly affecting employment.
Otherwise, I am not sure that I have an immediate answer for the situation in Australia. I am not familiar with the cost of living – this could be partially accounted for in the price level (and therefore in the exchange rate, which is already used to calculate the figures above). Otherwise, it would certainly be interesting to know what Australia’s labour force participation rate (slightly different than unemployment rate) is, as well as how historic changes in the minimum wage have affected the Australian labour market over time.
It is also worth noting that different countries calculate their unemployment rates differently. However, I doubt that this diminishes from the point you raised.
For a look at the other end of the spectrum, Switzerland has no minimum wage, and their unemployment rate is peaking at 3.5% right now (http://www.tradingeconomics.com/switzerland/unemployment-rate).
I will also add that if your only concern is ensuring a bit of redistribution, this is why I advocate the negative income tax. I dare not take the (increasingly likely) chance that the minimum wage could hurt someone.
This article is spot on.
If the problem is to help those at or near the poverty line, and the address some of the social determinants of health, I believe the different guaranteed annual income (GAI) schemes such as the negative income tax is worth further consideration rather than a left vs. right argument about increasing the minimum wage. From Mr. Craig’s well researched article, there is a case to be made for the advocates who want to see an increase in the min. wage to change what they are fighting for.
It seems as though we have this conversation every few years, without really addressing the problem. Perhaps its time to try another approach.
Hi Gobi, Thanks for your feedback!
The author never touches on how much government assistance is offered to minimum wage workers. Why again should tax payers be subsidizing profitable corporations? By any chance is Mike Craig recieving a stipend from McDonald’s or Walmart? Seems ridculous to talk about this, and leave out government assistance to minimum wage workers……something that wasn’t a problem in 1930! Bad article, horrible in fact.
Shasta, I find it difficult to follow your argument. Not all government assistance to low earners reduces their employers’ labour costs; only when those workers’ marginal tax rate is negative is that the case. For instance, if the government pays people with no income $X, and people with a minimum wage income $Y, and X > Y, then McDonald’s and Walmart have to pay their workers more to compensate them for the loss in government transfers. If X < Y, then McDonald's and Walmart can pay their workers less, as part of their workers' compensation is being paid by taxpayers.
So, if I follow your logic correctly, you are claiming that the marginal tax rate, net of transfers, for low income earners is negative, that this makes these workers willing to work more and for lower wages, and that a minimum wage is needed to correct this distortion?
No, not at all. I’m saying that the author’s complete failure to mention the ever increasing public share of certain corporations business model is an unacceptable omission. McDonald’s made $8.9 million last year in profits, yet in the US alone we paid out almost 3 billion in assistance to their employees. We the tax payers are supporting their model, and any serious discussion on this topic needs to address that fact. I appreciate your response though, and it was very well thought out.
Hi Shasta, I am the author of this column. Let’s assume, for the sake of argument, that low-wage workers are owed a living by “someone”, or “society”. How does it follow that *their employer* should be the agent to fulfill this obligation?
In other words, why shouldn’t it be you? In fact, the government is spending more money on social assistance than it would be if *you* personally subsidized your neighbours’ wages.
Furthermore, if you deny the negative employment effects, then why was $14 chosen as the right number? Why not $15? Why not $25 or $75?
I am truly flattered by your accusation of collecting a paycheque from Walmart.
Again Craig, you fail to mention the vast profits (record setting in fact) that these companies are enjoying while their employees receive benefits. Do you not agree that this form of public assistance is really corporate welfare?
Also Mike who is really paying for this? Shareholders of the companies? I suppose they pay for a bit, but by and large it is the middle class that bears the brunt of the tax burden, and subsequently supply the funds these workers need to survive.
Finally Mike, some other parts of your article are just plain wrong. For instance, you wrote, “Most of those working for minimum wage are teenagers seeking job skills and living with parents, or retired persons trying to keep busy or supplement pension income. Most minimum wage earners work part-time, work only for a short period, and live with parents or other family members.” That’s simply not true, and in fact that hasn’t been true in half a generation now. Have you been to a large employer of minimum wage workers in say…the last ten years, so? Are they really as you describe them? Can you support a statement like that with facts, or data? This is your responsibility as a young journalist, but I guess your aim is more at being a pundit, no? I noticed that you supplied some facts when it serves your opinion, but statements like the aforementioned are offered up with nothing to support them…but strategically placed next to real facts. Is it wrong of me to expect vastly profitable companies to share more of the burden? We’re being taken advantage of in my opinion.
No wage earner is owed anything…but why am I the one paying, did I make 9 billion in profit last year? I think you are a bit out of touch with what’s really going on, and how things have changed in recent years. Idealism is great, and all, but when I’m personally subsidizing very profitable companies who pay a mere fraction by percentage in taxes that I pay, that’s a problem.
You don’t seem to get it. Take some of that welfare assistance out of these record setting profits…or did you not know their setting records for both profit…and government assistance to their employees. I mean, how can both of those things be happening at the same time?
Hi Shasta, please click directly on the links embedded in the text you quoted. They will take you to Statistics Canada data and peer-reviewed academic studies supporting them.
That’s better, thank you.