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
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?