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Working Below the Poverty Line

Big pay raise for BC bureaucrats highlights yawning income gap.

By Iglika Ivanova 19 Aug 2008 |

Iglika Ivanova is an economist and researcher with the Canadian Centre for Policy Alternatives in Vancouver.

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B.C.'s working poor live far below Canada's poverty line

The recent steep pay hikes for B.C.'s senior bureaucrats triggered quite a controversy. Handing out raises in the 20 to 43 per cent range at the top end does seem a bit rich coming from a government that refuses to increase the minimum wage even by a few cents.

BC's minimum wage has been stuck at $8 per hour since 2001. That’s $16,640 a year.

Statistics Canada defines the "poverty line" (or low-income cut off) for a single person living in a major city in 2007 as $21,666 (before tax).

The stark contrast between the huge pay raises of top government bureaucrats and B.C.'s minimum wage illustrates the growing polarization of income in Canada. Over the past fifteen years, we have witnessed an increased concentration of income at the top, while wages and earnings have stagnated in the middle and fallen at the bottom.

A recent Statistics Canada report shows that while B.C. managers saw an average increase of 15 per cent in their hourly wages between 1997 and 2007, the proportion of jobs paying less than $10 per hour has barely budged.

Hourly wages remain stagnant

One would expect that years of low unemployment and strong economic growth would improve the economic well being of those at the lower tiers of the labour market. Wouldn't employers need to offer higher wages and better working conditions in order to attract and retain people in our tight labour market?

That's the conventional economic thinking, but it's not working out in practice. We only need to look to BC Stats' latest numbers to find out that in traditionally low paid occupations, such as trade and accommodation and food services, the average hourly wage rates have increased by a meagre 1 per cent between 1998 and 2007 (when inflation is taken into account).

As the labour market becomes less equal, the need for government action becomes more urgent. There are different policies that can help reduce inequality. A good starting point would be to increase the minimum wage to a level that ensures that no full-time, full-year worker lives in poverty.

B.C.'s minimum wage has been frozen at $8 for a staggering seven years. Taking inflation into account, it is worth 11 per cent less today than it was in 2001.

Back then, B.C. had the highest minimum wage in Canada. However, other provinces have since moved on. In fact, B.C. is the only Canadian province that did not increase its minimum wage this past spring. As a result, we have slipped down the rankings to having one of the lowest minimum wages of the country, on par with the Atlantic Provinces.

A number of provinces have committed to further increases over the next several years, including some of our fellow bottom-ranked provinces. For example, Newfoundland has announced plans to reach a $10 minimum wage by 2010.

$10 the limit for 300,000 B.C. workers

Critics claim that minimum wage policies have a limited effect because few people actually work for the minimum wage. It is true that only 4.6 per cent of B.C.'s paid employees earned minimum wage in 2006 according to BC Stats. However, a recent Statistics Canada study shows that more than 16 per cent of B.C. employees -- more than 300,000 people -- worked for less than $10 per hour in 2007. Increasing the minimum wage to $10 per hour would benefit this much larger group of workers who desperately need a raise.

That said, policy decisions are seldom clear-cut, and it is important to consider the potential problems with a minimum wage increase as well.

Some critics consider the minimum wage a "blunt instrument" to fight poverty, arguing that minimum wage workers are mainly teenagers or youth, many of whom are not poor because they live at home with their parents. Let's look at the numbers.

In 2006, BC Stats analysis reveals that the majority of minimum wage workers were indeed between the ages of 15 and 24, although a substantial minority of 42 per cent were 25 or older.

Similarly, among the much larger number of workers who earn less than $10 per hour, about 45 per cent were 25 or older (latest data is for 2003 and at the national level, but the figures for B.C. should be very similar).

Clearly, a large number of people are trying to live on and support their families on low wages and would benefit from an increase in the minimum wage. Women and recent immigrants are disproportionately affected.

While increasing minimum wages might conceivably benefit some teenagers who are not technically poor, this is but a small price to pay for ensuring that those who are trying to support themselves through full-time, full-year work can escape poverty. Further, higher earnings for youth are not a bad thing, especially given the large hikes in BC post secondary tuition fees over the past decade.

Employers hurt by B.C.'s delay?

The main argument used to stifle calls for a minimum wage increases, however, is that it might cause low wage jobs to be cut because some employers would not be able to afford it.

While the research findings on this question are certainly not unanimous and individual studies can be endlessly cited on one side of the debate or the other, mainstream economists' opinion has shifted towards the conclusion that "modest increases" in minimum wages do not kill jobs. In fact, a joint statement issued in 2006 by over 650 US economists, including 5 Nobel laureates, stated that "a modest increase in the minimum wage would improve the well-being of low-wage workers and would not have the adverse effects that critics have claimed."

The key here is the size of the increase. Some studies point to negative employment effects, but when these studies are reviewed carefully, it turns out that modest job losses are found in response to fairly large increases in minimum wages.

Such sharp one-time hikes are only necessary if the government leaves minimum wages unchanged for long periods -- as B.C. has done.

These sorts of business-disrupting adjustments can be easily avoided by indexing minimum wages to inflation. Employers would benefit from the increased certainty. With scheduled annual adjustments they would know what to expect and could plan for the upcoming increases in their wage bill.

I'm not opposed to paying for top talent. And I certainly want our ministers to be advised only by the best and brightest. But I also want BC to be a province with little or no child poverty, where there are no "working poor" and the fruits of economic growth are shared more equitably among our fellow citizens.

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