With the minimum wage debate once again making headlines across North America, it’s time to stop and look at what changing the rate really accomplishes.
Ontario Premier Kathleen Wynne announced last month that the province’s minimum wage would be raised from $10.25 to $11 this June. This will make Ontario’s rate the highest in the country, tied with Nunavut.
Wynne seems to have taken note of the debate going on in the U.S. where Barack Obama and the Democrats have made raising the minimum wage a key part of their strategy going into this year’s midterm election season. Many state governments have also joined the minimum wage debate as a method of raising living standards for those in poverty.
There is a concerted campaign in Ontario by anti-poverty groups and unions to raise the wage to $14 an hour. A big part of this debate comes from the desire to combat poverty by providing a “living wage” for the large segment of the population stuck in minimum wage work.
There is a fundamental problem with this argument. Whether we raise the minimum wage to $11, $14, or $50, it actually does little to improve the poverty rate.
Here why. Only 12 per cent of those people earning minimum wage in Canada live below the poverty line, according to Statistics Canada data. The vast majority of the other 88 per cent are young people under the age of 25.
While Wynne’s modest increase will go over well with many voters in the provincial election expected later this year, it’s not the best way for helping those living in poverty. After all, most people living in poverty are not making any wage at all.
Minimum wage jobs are an important stepping stone for youth into jobs that prepare them for bigger and better things down the road. Raising the minimum wage too high only makes youth more expensive for businesses to hire, killing opportunities to find that all-important first job.
There is evidence that pegging the minimum wage too high has already impacted the number of entry level jobs available to youth.
Electronic self-checkouts have become standard in many big-box stores such as Wal-Mart and grocery stores such as Loblaw’s. This means fewer of the basic customer service jobs young people count on because businesses have found it cheaper to pay for a machine once.
We can’t pretend that raising labour costs for businesses don’t impact on their ability to hire people. The cold, hard truth in a capitalistic society is that businesses, both large and small, will always look to cut costs and maximize profits.
If the cost of labour per hour is forced to increase then the business can afford to pay for fewer hours of labour. Governments at every level know this. Otherwise why not make the minimum wage $50 per hour and make everyone rich?
Supporters of a minimum wage hike argue that people cannot live on the current rate of $10.25. But, the minimum wage is not meant to be lived on, even if in reality some people do. Statistics Canada data shows that 60 per cent of those making minimum wage in the country are living with their parents or another family member. The numbers also show those working for minimum wage are mostly part-time and are likely to hold the job for less than a year.
Of course, raising people out of poverty should be a top priority for all levels of government. It is time to bring the help to where the problem lies: the undereducated thousands who are almost unemployable in a modern economy.
A report from the Organization for Economic Co-operation and Development is urging Western countries to combat poverty by targeting low-income and unemployed people for skills training. In today’s knowledge-oriented economy, those with less than a high school education are doomed to minimum wage work or unemployment.
They are six times more likely to work for minimum wage than those with some level of post-secondary training, according to Statistics Canada.
Ensuring low-income children have access to the same education opportunities as their high-income counter parts is one part of the solution. The second part is investing in skills training and educational opportunities for unemployed adults living in poverty.
This initiative may require higher taxes on the wealthy, but at least it is investing the money where it can really make a difference.
The federal government seems willing to at least take small steps in this direction. The 2014 budget has called for multiple job training measures, including funds for unemployed older Canadians looking for work.
Meanwhile, the provinces and the federal government continue to hammer out the details of the Canada Job Grant designed to train Canadians for those available jobs.
It’s time for governments in Ontario and across North America to take the fight against poverty seriously by looking at where the real poverty exists. Blindly raising the minimum wage closes more doors to employment than it opens.