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Should we raise the Minimum Wage?

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“You know what it means when someone pays you minimum wage?” American comedian Chris Rock once asked. “It’s like, ‘Hey if I could pay you less, I would, but it’s against the law.’”

The nature of minimum wage might not be so cut and dry, particularly for local small business owners who are employing members of their own community, but for such a seemingly small amount of money the minimum wage sure means a lot to all stakeholders involved.

For the worker, earning the lowest legal wage usually means living on or around the poverty line. For the employer, particularly small businesses, it sometimes presents a challenge in balancing the books. To unions, advocating for fair wages on behalf of workers is an endless battle. And for government, legislating a minimum wage means striking a delicate balance.

It’s been three years since the last increase in Newfoundland and Labrador, and the province is now in the midst of yet another minimum wage debate.

The minister responsible for the Labour Relations Agency has said Newfoundlanders and Labradorians can expect an announcement on the province’s minimum wage sometime this fall, though he hasn’t divulged where he currently stands on the issue.

Justice Minister Darin King, who handles the Labour portfolio, told The Independent on Tuesday he has been considering the recommendations made in a December 2012 report by the government-appointed Minimum Wage Advisory Committee, and that he has received “considerable feedback” from stakeholders, including the Newfoundland and Labrador Federation of Labour (NLFL) and the Newfoundland and Labrador Employer’s Council (NLEC).

The committee recommended the province increase the minimum wage in 2013 to compensate for lost purchasing power since the last increase to $10/hour in July 2010. It also recommended six months notice be given to allow employers to prepare for the change, and that the minimum wage subsequently be tied to inflation and adjusted annually based on the province’s all-items Consumer Price Index (CPI) from the previous year.

If King were to announce a minimum wage increase today, and give six months notice, low wage earners wouldn’t feel the effect until late March 2014.

The province has seen a significant increase in its minimum wage over the past decade. Between 2005 and 2010 it jumped 67 per cent from $6 to $10/hour, due primarily to Newfoundland and Labrador’s booming oil-driven resource economy. That was three years ago, however, and inflation has continued to drive up the cost of living, 3.4 per cent in 2011, another 2.1 per cent in 2012, with another likely increase in 2013.

The argument against increasing the minimum wage

The main argument from the business lobby against minimum wage hikes is that they hurt small and medium-sized businesses.

When the minimum wage goes up, the argument goes, businesses have to absorb the cost by not only paying their minimum wage earners more, but also their employees earning more than minimum wage in order to balance their pay scale.

Vaughan Hammond, a senior policy analyst with the Canadian Federation of Independent Business (CFIB) in St. John’s, recently told The Independent, however, that while the CFIB would like to see the government consider alternative ways to help low wage workers, he agrees with the committee’s recommendation that the province’s minimum wage be tied to inflation.

The CFIB opposes any large lump sum minimum wage hikes, he explained, but “the committee was pretty much in line with what CFIB would have liked to see.”

To help businesses avoid shouldering the burden of legislated wage increases Hammond said the provincial government should first consider other means. “And that may mean increasing the (personal income tax) threshold even further in order to ensure that low income workers have more money in their pockets,” he explained.

“[R]ather than raise minimum wage, which doesn’t necessarily address the fundamental policy issues that they want to address, which is poverty, maybe focus on the income taxes (instead).” – Vaughan Hammond, CFIB policy analyst

“Because one of the implications of raising minimum wage is that there’s also an increase (for businesses) in payroll taxes, because by virtue of the payroll going up then CPP goes up, employment insurance goes up, workers compensation contributions go up, and that kind of thing – (businesses) have to absorb those costs as well. So that’s where we’d like to see government go; rather than raise minimum wage, which doesn’t necessarily address the fundamental policy issues that they want to address, which is poverty, maybe focus on the income taxes (instead).” In its 2011 report Minimum Wage: Reframing the Debate, the CFIB also stated it would like to see government improve “access to education and training opportunities” as a way to help low income earners.

The report also highlights that as of March 2010 Newfoundland and Labrador had the highest percentage of minimum wage earners of any province in Canada, at 9.3 per cent of the total workforce. It also posited that “most workers who benefit from minimum wage increases do not live in poor households,” and that “a significant share of the working poor already earn more than the minimum wage.”

Nationwide, the report states, “59.3 per cent of minimum wage earners are between the age 15 and 24,” that “57.3 per cent are either high school graduates or have yet to complete their high school education,” and that “minimum wage earners are more likely to be part-time employees (59.1 per cent).” Moreover, “[m]ost studies find that increases in the minimum wage lead to significant decreases in employment.”

The argument for a minimum wage increase

Mary Shortall, a St. John’s-based representative for the Canadian Labour Congress’ Atlantic Regional Office, says the CFIB’s argument doesn’t hold up in the context of Newfoundland and Labrador’s recent economic history.

“In this province…economic growth is at an all-time high. Part of that is because there’s resource-based industries that are doing really well, but also because of that there’s a lot of confidence, and so the labour market is increasing,” she says. “So take Newfoundland’s GDP for example; it’s up, and 55 per cent of what drives the GDP is consumer spending. So if people don’t have the dollars to spend, then that’s going to have a negative impact on the economy … [L]ower wages might make profits bigger but it’s not helping the economy.”

A report released by the Canadian Centre for Policy Alternatives earlier this year highlighted the fact that net profits of foreign national or multinational corporations operating in Newfoundland and Labrador make up a significant percentage of the province’s gross domestic product (GDP), double the national average in recent years. The report’s authors advocate for raising corporate taxes in Newfoundland and Labrador to compensate for the fact that so much money is leaving the province and country and not being reinvested in the local economy. If captured by the province, the authors say, revenues from higher corporate taxes could cushion the economic burden of potential decreases in commodity prices (oil, minerals, etc.) and also serve to offset the provincial government’s recent turn to austerity in its 2013 budget, when it cut public sector jobs and funding to social programs.

“The thing that drives the economy is the money that’s being spent in the province by wage earners, and people who live at minimum wage or just below the poverty line don’t have that spending power.” – Mary Shortall, Canadian Labour Congress

“We have the highest proportion of low wage earners as a percentage of our labour force,” says Shortall. “We have huge profits – a higher share of the GDP – that go out of this province because the companies are owned by non-Newfoundlanders and Labradorians. The thing that drives the economy is the money that’s being spent in the province by wage earners, and people who live at minimum wage or just below the poverty line don’t have that spending power,” she continues. “So I just don’t understand that argument; if they spend money in the shops then the shops are going to do better, right?”

Former Newfoundland and Labrador Federation of Labour President Lana Payne says the argument that a minimum wage increase will lead to job losses in the province also isn’t substantiated by recent history. “To get the wage to $10 by 2010…was about trying to recapture some of the (lost value). And because our economy was extremely hot we felt there were no arguments the employer community could put forward that would make any sense in that kind of an environment,” she says. “And indeed, when we went back and looked at the history of minimum wage increases in the (first) decade of the 2000s, what we found is that even though minimum wage went up 67 per cent, we also had significant job growth, including in the low pay sector, which is usually hospitality, retail, that sector. We had the same employment growth in that sector that we did generally in the economy – it was about a 10 per cent growth in jobs over about a decade. We also had a substantial decrease in youth unemployment, which is another area where they say young people will be thrown out of work if we increase the minimum wage.

“The last increase we had, in 2010,” Payne adds, “it was the smallest wage gap we had between men and women in the history of the province.

“Nobody with a full-time job should be earning below the poverty line. In 2010…anyone working full-time at $10 an hour would be slightly just above the poverty line. Now they’re probably below it again because you’ve had three years with no increase, so the cost of living has eaten into your wage. So what’s taking so long?” she asks.

In the lead-up to Labour Day weekend earlier this month, provincial NDP leader Lorraine Michael called on the government to end its silence and respond to the committee’s report and recommendations.

“I think the report was dead on and that the recommendations are extremely important,” she told The Independent on Sept. 6. “The recognition, for example, that there’s been a loss in purchasing power since 2010 was an important thing for the report to recognize because the goal of getting to $10 an hour – that was a goal for four or five years ago, and even at that we still are at the end of the pack (in 2013).”

Striking the right balance

“I don’t anticipate that this is going to drag on a lot longer,” King told The Independent on Tuesday. “I’m very close to formalizing a recommendation for cabinet to consider.

Darin King
MHA Darin King. Photo courtesy www.assembly.nl.ca

“I recognize that there are people who are struggling every single day to support and raise their families,” he continued, emphasizing the provincial government’s efforts to support low wage earners through other means. “While (those supports) aren’t coming through their wages, the fact that they have drug plans, and they get heat rebates and tax breaks – those all indirectly put more money into people’s pockets. (It’s) not my intention…to minimize the fact that there are still people struggling out there. We recognize that and we’ll try and do what government feels it’s able to commit to.

“Recognizing there are lots of people unemployed and lots of people into low income jobs and positions in the province, we have provided mountains of opportunities for people to encourage them to do some training and to do some upgrading, whether it’s to do the adult basic education and get their Grade 12 diploma and help them move on to further studies, or whether it’s to help them retrain if they’ve lost their job,” King continued. “Or whether it’s somebody who wants a higher position, a better paying position, we provide tremendous amounts of training, money and supports through our Advanced Education and (Skills) offices throughout the province.

“[T]here are opportunities there other than just to wait for a raise in minimum wage…” – Darin King, Minister responsible for the Labour Relations Agency

“So there are opportunities there other than just to wait for a raise in minimum wage; there are lots of opportunities available for lots of people, and we provide all kinds of supports besides financial supports…for individuals and low income families and single parents and those kinds of things. It would be my suggestion to you that a lot of people in the province are benefiting or have benefited over the last three or four years from the kinds of investments we’ve made in training and development.”

Michael said the government could be doing more to help small businesses deal with minimum wage increases. “One (option) would be – and it was part of our 2011 election platform – to bring down the taxes for small business.

“Right now small businesses pay four per cent tax, which is quite smaller than the larger corporate bodies pay, but our position is that we should work toward no tax for small business, which would take away a big expense for them and would help them meet the cost of having staff,” she continued. “So I think it can’t be done without government considering those kinds of actions.”

Increase necessary, but not a long term solution

Whatever their position on the minimum wage debate, most agree that full-time low wage workers should at the very least be earning enough to keep up with inflation (rising cost of living, food prices, transportation, etc.) and living above the poverty line.

“It really does take the issue out of the politics of things,” Payne says of the committee’s recommendation to tie minimum wage to the province’s annual CPI. “When you put in place this kind of formula, then at least the businesses can prepare and it just makes a lot of sense.”

Annual adjustments to the minimum wage, the committee’s report concludes, “are preferable to waiting numerous years between increases which may lead to cumulatively large changes.

“The adjustments would be announced to the public by January 31 of each year and implemented on May 1 of each year. They would also be rounded to the nearest $0.05 (as is the practice in Nova Scotia) which would help simplify payroll calculations. The Committee does not recommend that the mechanism be used to decrease the minimum wage – if deflationary pressures arose Government could address that scenario if and when it occurred.

“Linking the minimum wage to this mechanism will provide a measure of stability and predictability to minimum wage policy that will benefit all stakeholders.”

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Editor’s note: If you would like to respond to this or any article on TheIndependent.ca, or if you would like to address an issue we haven’t yet covered, we welcome letters to the editor and consider each of them for publication in our Letters section. You can email yours to: justin at theindependent dot ca. Not all letters will be printed, but all will be read.

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