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Ontario’s Latest Study on the Minimum Wage To Release Report Today: Some Background

Yet another government study of the minimum wage is set to be released today.  This one is chaired by my friend and colleague Anil Verma of the

Professor Verma chaired the Minimum Wage Task Force

Professor Verma chaired the Minimum Wage Task Force

University of Toronto.    Professor Verma was asked to recommend a process for setting the minimum wage moving forward.  It is not expected that the panel will make a recommendation about whether the existing minimum wage  should be raised immediately.  The basic minimum wage has been $10.25 per hour since March 31, 2010.  Low wage worker advocates have been pushing for a raise to $14 per hour.

Media outlets are reporting today that the main recommendation from the panel will be to raise the minimum wage annually in accordance with the inflation rate.  Activists are generally happy with that model as a process for moving forward.  It aims to maintain relative wages for Ontario’s lowest paid workers. However, the question of where the initial rate should be set remains a matter of contention.  The activists argue that shift to indexing should be pegged initially at the $14 per hour level, which they argue puts a full time worker slightly above the ‘poverty rate’. Rumour has it the panel will recommend fixing the new rate immediately based on indexing to inflation rate as of 2010, when the $10.25 basic rate began.

The statutory minimum wage in Canada dates from 1917 in Alberta.  By the 1920s, every jurisdiction in Canada had some form of wage fixing legislation.  The first law in Ontario was the Minimum Wage Act of 1920, which assigned the role of setting a basic weekly minimum wage for women to a 5 person board.   Early minimum wage legislation applied only to women, and aimed to fix a wage allowing for basic subsistence for a single woman, assuming no dependents or need to save.  Minimum wage laws became more common after World War I, as women played a greater role in the labour market, concerns about Bolshevism spreading in response to growing poverty, religious organizations promoted the need for decent treatment of workers, and trade unions became concerned about competition from ‘cheap women workers’.  Advocates of a minimum wage argued that it was needed to protect the health of women for reproductive purposes, and also to improve productivity and purchasing power.  Minimum wage regulation later spread to men, though women continue to more represented in minimum wage jobs than men.  See who makes the minimum wage in this report by the Wellesley Institute.

From the beginning of government legislation in the area of wages, employer groups have made the same counter arguments in opposition.  In a great piece by Professor McCallum (Keeping Women in their Place: The Mininum Wage in Canada, 1910-25, (1986) 17 Labour/Le Travail 29-56), the Canadian Manufacturers Association’s position in 1917 is recounted.  The CMA argued that minimum wage legislation is ‘economically unsound’ and would “adversely affect the interests of the very people it is designed to help” and cause unemployment.  I noted in an earlier post that the argument that laws intended to help the poor will actually harm the poor has been a staple of reactionary politics for over 200 years.  Albert Hirschman called this the Perversity Argument in his great book the The Rhetoric of Reaction.  It remains a core pillar of the business argument against the minimum wage and every attempt to raise it.  The argument is captured famously in this clip by godfather of neoliberal economic theory, Milton Friedman:

You can find the same basic line of reasoning against the minimum wage in the reports of modern day business associations.  For example, check out the report of the Canadian Federation of Independent Business, arguing against minimum wage hikes.

As is often the case with regulations governing work, economists and industrial relations scholars do not agree on the affects of minimum wages.  For every study claiming that minimum wage increases are overall harmful to low wage workers and cause job losses, there is a study showing that minimum wage increases reduce poverty and have no net negative impact on overall jobs in an economy.  Politicians cherry pick which studies support their policy position.  Harry Arthurs, Canada’s leading work law scholar and Chair of the federal government’s review of employment standards (Fairness at Work), responded to this perennial disagreement amongst economists over the affects of minimum wages by diverting the debate away from economics:

 ”In the end, however, the argument over a national minimum wage is not about politics or economics.  It is about decency.  Just as we reject most forms of child labour on ethical grounds, whatever their economic attractions, we recoil from the notion that in an affluent society like ours good, hard-working people should have to live in abject poverty”. (p. 247)

 

Issues for Discussion

Should the Ontario government accept the arguments of worker advocates that the minimum wage should be immediately raised to $14 per hour?

Do you believe arguments of the employers, economists like Milton Friedman, and those on political right that raising the minimum wage will ultimately harm poor people and increase unemployment?  If so, why do you believe this?  Is it because you have read the economic studies from both sides of the debate, or just because it makes sense to you?

How should a government decide what impact raising the minimum wage will have when economists cannot agree?

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2 Responses to Ontario’s Latest Study on the Minimum Wage To Release Report Today: Some Background

  1. Jon Degan Reply

    January 28, 2014 at 9:35 pm

    I like that point of what is “decent” and humane. If someone was willing to work for $1/hr less, there would someone willing to work for $2/hr less and businesses would happily pay less. How far down would businesses go for it? Clearly we wouldn’t be talking Bangladesh or India wages but really, let’s me honest: If there was no min. hourly wage an enterprise is in the business of profit. It is society’s role to balance that capitalism with fairness.

    Health and safety requirements cost businesses too: Hard hats and workboots and harnesses are all minimum safety requirements yet no one says “Jobs will be lost if X is required to work on Z!”

  2. Adele M. Reply

    February 9, 2014 at 11:35 pm

    I agree that the minimum wage should be raised so that an individual or family can live on that wage. An individual can no longer support a family on a low income like in the old days. The $14 per hour would place the individual above the poverty line. I think the increase should be gradual but through incremental wage increases based on how long you have been there. If they have been there 3 years then give them the $14 immediately. If less than 6 months 10.25 plus the cost of living increase, 1 year but less than two 11.50, 2 years but less than three years 12.50 (something like that). Then let the different levels increase with cost of living each year. This I believe would ease the increases in for employers and it would not be a big increase except maybe for the employers who had long standing employees which should have had increases anyways. It would make it a relatively fair playing field. Employers could use the wage grid to give employees a higher starting wage depending on their experience and knowledge. One minimum wage doesn’t factor in this.

    Reality is that employers should have already increased the wages of their employees based on a number of factors but without an increase in minimum wage some employers never increase the wages and wonder why they have such a high turnover. Why would an employee stay working for a company that doesnt offer wages increases or benefits. They just keep jumping from job to job hoping for career advancement opportunities to see those wage increases or benefits. When worker find an employer that offers more they stick it out longer. Raising the minimum wage may have an effect on the number of jobs but minimal. Maybe employers will take recruiting and retaining staff more seriously and work harder at keeping their employees not dismissing them so easily.
    I would hope the higher wages would help the poor giving them a better chance at improving their lifestyles. When making such minimal monies they need to take advantage of every “handout” for lack of a better word. Some would take pride in being able to make it on their own. This might even stimulate the economy a bit.

    How should a government decide what impact raising the minimum wage will have when economists cannot agree?
    They will have to balance the what they have been advised of. They can always have consultation with employers, labor, etc as well. There is always two views. In 2008 the goverment reached out to others on what they should do thus the Action Plan was developed. It can be done again.

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