The $15 Minimum Wage. Good politics, bad policy

burrill-gary-npd

The latest salvo in the Nova Scotia NDP’s battle back from electoral oblivion has been fired. Newly minted leader Gary Burrill is launching the Nova Scotia franchise of the “fight for 15” minimum wage war. Good politics perhaps but this is bad economic policy. This massive minimum wage hike is modelled on the Alberta government’s last election platform and has become somewhat of a Cause Célèbre for organized labour across Canada and the U.S.

The “Fight for 15” walks hand-in-hand with the discussion of the Living Wage, a somewhat arbitrary economic line-in-the-sand being drawn by anti-poverty and social activists.

In a study commissioned last year by the United Way the Living Wage for Halifax was identified by the Canadian Centre for Policy Alternatives at $20.10 per hour. This benchmark describes what the CCPA believes each money earner in a family of two parents and two school age children must earn to provide what they saw as a “reasonable quality of life”, free of the stress of financial hardship.

However the 20 dollar plus Living Wage is more a Trojan horse. Behind this is what its supporters feel is the much more “reasonable” 15 dollar minimum wage. While the Living Wage is promoted as a voluntary measure, it’s not hard to draw a line directly to the minimum wage policy discussion. The headline in the Herald last year read, Study: Minimum wage only half of what it needs to be.

The Living Wage has been officially adopted by New Westminster, British Columbia and several cities in the United States. The Mayor of Vancouver is now mulling over the idea. The outcome for city employees is nominal as the vast majority of municipal government jobs pay near or above that mark anyway. Where it is really felt is in the private sector.  As a Living Wage community, it is a requirement for private contractors also to also meet that benchmark in order to be eligible to contract with the municipality.

Unions like this policy because it drives up wages and reduces the ability of private sector contractors to compete for union jobs. It effectively increases the government employee wage floor, makes collective bargaining easier and freezes out small private contractors, a perfect union trifecta.

While this Living Wage conversation goes on, discussions around the minimum wage are ramping up in Canada with the help of Alberta`s new government. It was in the NDP platform. When the NDP swept into power, Alberta was left with a minimum wage policy that remains nothing short of horrifying for small business.

Since that time the Alberta government’s own advisors say: “it’s reasonable to assume significant job loss is one realistic possibility” and the NDP government has not produced a single economic impact analysis demonstrating otherwise. Premier Rachael Notley even admitted Alberta’s fragile economy cannot handle this shock.

Nova Scotia’s economy is certainly no more equipped to handle this kind hike and the NDP here are proposing they can meet that goal by 2018. There is no economic impact analysis. They say small business will be exempt, but no criteria is identified. How will they determine how one business must pay a $15 minimum wage and another does not? The prospect of implementing this kind of discriminatory economic policy is nightmarish.

Punishing jumps in the minimum wage mean targeted business owners will need to hike prices, lay off staff, reduce employee work hours and reduce training. Profitability will decline, reinvestments and growth in business will diminish, and jobs which may otherwise have been created will simply not appear. In other words, nothing good.

On the other hand, government will reap benefits through higher personal income and payroll tax revenues. For the low-income employee, the benefit will be marginal at best.

In fact, minimum wage earners lost more in 2015 due to higher government deductions (e.g. CPP/QPP, EI, federal and provincial taxes) compared to 2010 in all provinces and territories except Newfoundland and Labrador. For example, Alberta minimum wage earners could see their payroll deductions increase from $1,965.60 in 2010 to $5,576.22 in 2018 with the minimum wage rate increase to $15 per hour.

Minimum wage hikes are harmful to youth employment.  According to a recent report from the Fraser Institute, for every ten per cent increase in minimum wage there is a resulting decrease of youth employment by three to six per cent.  The NDP proposal of a 29 per cent to the minimum wage would mean a reduction of 9 to 18 per cent in youth employment in Nova Scotia.

The report also notes that nearly 59 per cent of people earning minimum wage are people aged 15-24 who typically are entering the workforce.  Only 2 per cent are people who are single parents who have at least one dependent living at home.

Basic Personal Exemptions 2016

BPE

If government is looking for a policy change to help low income workers, they need look no further than the Basic Personal Exemption (BPE). This is the annual income at which a worker begins to pay taxes. Nova Scotia has the second lowest BPE is Canada at $8,481. We urge the Nova Scotia government to address this shameful statistic first before looking at reckless minimum wage hikes.

We were very pleased to see this week the Premier suggesting this is his preferred option. If so, CFIB will be looking for it in the next budget. Nova Scotians face some of the heaviest tax burden in the country. By allowing low income earners to keep more of what they earn, rather than enrich the treasury through minimum wage hikes, the government can actually do something meaningful to benefit those who need it most.

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One thought on “The $15 Minimum Wage. Good politics, bad policy”

  1. Great insight: “Unions like this policy because it drives up wages and reduces the ability of private sector contractors to compete for union jobs.”

    The $15 minimum wage movement is entirely based on wishful thinking. They believe that employers won’t lay off anyone, won’t reduce anyone’s hours, and will still hire the same number of people at a higher rate than they would at a lower rate.

    I think the end-game of the $15 minimum wage movement is a guaranteed annual income. Raising the minimum wage to $15 will result in more unemployed and underemployed workers. This will create even more support for a guaranteed annual income.

    I wrote a short essay (600 words) called “Why Raising the Minimum Wage Can Result in a Lower Unemployment Rate.” If you would like to read it, I am open to any feedback: https://christopherjohnlindsay.wordpress.com/2016/05/11/minimum-wage-unemployment/

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