Wednesday, February 8, 2017

A letter about raising minimum wage


Re: Irene Liu’s “Raising the minimum wage isn’t a solution to student poverty” (January 24 2017)

Contrary to Irene Liu’s arguments, raising the minimum wage in Ontario to $15/hour would in fact do a great deal to alleviate poverty among students, and take a step in the right direction of reversing the low-waging of Ontario’s economy.

In arguing that a higher minimum wage will not resolve student poverty, Liu’s central claim is a common one: raising the minimum wage will force employers to cut jobs, and students will lose out in the resulting competition for scarce jobs.

The general argument fails to stand up to scrutiny. Recent credible research on minimum wage increases finds no discernable impact on employment levels, a negligible impact on price increases, and all while helping alleviate poverty. With regards to employment levels remaining the same, this is because a higher minimum wage reduces turnover, compels employers to improve workplace efficiency, and also contain higher wages (a process of “wage compression”). Employers adapt to the new minimum standards just as they have with the original introduction of minimum wages, basic health and safety standards, employer contributions to workers’ compensation and employment insurance, etc.

Liu also warns proponents of raising the minimum wage that “the flow of money isn’t only in one direction.” Liu should heed this advice in considering where money flows when minimum wage workers get pay increases. Low-income workers plow their new earnings back into local economies, especially on necessities that low-wage workers have either been going without or buying at inferior quality. Low-wage workers will not be pursuing unproductive investments like inflationary real estate speculation or legal and illegal tax evasion schemes.

As for the specific issue of student poverty, Ontario’s recent history offers a useful counterfactual to Liu’s central argument about minimum wage increases hurting students. From 1995 to 2003, the two-term Tory government of Mike Harris froze the minimum wage at $6.85/hour. During this same period, average undergraduate tuition fees rose from $2,518 to $4,808. As a result, the annual hours of work at minimum wage to cover tuition went up from 368 to 702. At today’s minimum wage of $11.40/hour and average undergraduate tuition fees at $8,114, this figure is basically the same: 712 hours. The absence of minimum wage increases in Ontario over eight years led directly to the impoverishment of Ontario students through a ballooning of debt levels.

The wider effect of Harris’s minimum wage freeze relates directly to Liu’s concerns about stiff job competition among students. As well as Harris’s comprehensive restrictions on our ability to exercise our Charter-recognized collective bargaining rights, the minimum wage freeze low-waged Ontario’s economy. Low-wage work in the province, measured by being within $4/hour of the minimum wage, has grown from 19.8 percent to 29.4 percent of the workforce between 1997 and 2014. So, competition for jobs has certainly increased, but it has increased for low-paying jobs as a result of minimum wage freezes. By extension, this means competition among students for decent-paying entry-level jobs has also increased as a proportion of these jobs in the economy has declined.

A $15 minimum wage in Ontario would immediately alleviate poverty and hardship for millions of Ontarians who are employed and do the foundational work that generates the wealth in this society. It would pump enormous sums of money into local economies which have been struggling under a quarter century of deindustrialization, wage suppression, and austerity-ravaged social services. It would even provide an impetus for employers to become more efficient in workplace organization, or force a reckoning for employers profiting for so long off highly-exploitative business models.

Minimum wage increases are not a panacea to poverty, rising tuition fees, insecure low-wage jobs, or harsh competition for scarce good jobs. Ontario workers need unencumbered access to their collective bargaining rights through the simple signing of a union card – instead of the current system of funneling workers through a bureaucratic gauntlet of onerous regulations designed precisely to dissuade unionization and facilitate employer intimidation. Collective bargaining power can transform bad jobs into good jobs. Relief for students can only come through dramatic reductions in tuition fees which will require the restoration of progressive taxation regimes at the federal and provincial level. As for employment levels, the province has been without an industrial strategy since the onset of free trade under Mulroney. With the climate crisis, a new industrial strategy could be organized around a sweeping green transition in transit, energy and retrofitting, but this is going to first require a profound political movement, not a series of technocratic reforms.

Tackling the problems of poverty, inequality and employment opportunity in Ontario is going to require us to dispense with the hackneyed ideological claims which merely uphold the status quo. It is going to require hard-nosed political organizing in conjunction with reality-based research.


Sources:
John Schmitt, Why Does the Minimum Wage Have No Discernible Effect on Employment? February 2013. http://cepr.net/documents/publications/min-wage-2013-02.pdf

Michal Rozworski, Are Higher Minimum Wages Un-Canadian? January 2014. http://www.progressive-economics.ca/2014/01/16/are-higher-minimum-wages-uncanadian

Sylvia Allegretto, Arindrajit Dube, Michael Reich, Ben Zipperer, Credible Research Designs for Minimum Wage Studies. September 2013. http://ftp.iza.org/dp7638.pdf

Arindrajit Dube, Minimum Wages and the Distribution of Family Incomes, December 2013. https://dl.dropboxusercontent.com/u/15038936/Dube_MinimumWagesFamilyIncomes.pdf

Sheila Block, A Higher Standard: The case for holding low-wage employers in Ontario to a higher standard, June 2015. https://www.policyalternatives.ca/sites/default/files/uploads/publications/Ontario%20Office/2015/06/Higher_Standard.pdf


Ontario tuition fees and minimum wage data: http://apps.policyalternatives.ca

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