Posted: Monday, 5 February 2007

The minimum wage debate is heating up once again, with the NDP and the labour movement strongly pushing for a minimum wage of at least $10 per hour in Ontario, at the federal level (as recently recommended by the Arthurs Report) and indeed across the country. Anti- poverty groups and the Toronto Star now strongly endorse a decent minimum wage as part of an overall anti poverty strategy.

Predictably, the growing momentum for a higher minimum wage has generated cries from business and employer-friendly governments that such a move is an “inefficient” way of fighting poverty, and will come at the cost of jobs. Ontario Finance Minister Greg Sorbara has said a $10 per hour minimum wage - enough to get a single full-time earner in a big city just above the poverty line - would cost 66,000 jobs.

With respect to the argument that minimum wages are a poor way to fight poverty, it is true that not all low-wage workers live in poor families. However, very few low-wage adults live in affluent families, and higher wages are one important building-block in comprehensive strategies to assist the working poor. There is also no good reason why workers should have to put up with very low wages simply because they are cushioned by dependency on the earnings of a partner.

With respect to the job loss argument, individual studies by economists can be and are endlessly cited on one side or other of this endless debate. However, the consensus of even the impeccably orthodox and mainstream economists at the Organization for Economic Co-operation and Development (OECD) is now that minimum wages set at “reasonable” levels do not have significant negative impacts on the employment of so-called lower-skilled adults.

The latest OECD Employment Outlook - a re-appraisal of the original 1994 OECD Jobs Strategy which was very critical of minimum wages - reports that “a moderate minimum wage is generally not a problem”, can create important incentives to work for people on social assistance, and can lower the cost to governments of supporting the incomes of working poor families. The OECD Employment Outlooks of 1998 and 2003 contain the detailed empirical studies which led to revision of the previous OECD view that minimum wages cost jobs.

Similarly, the consensus of studies on the impacts of the minimum national wage introduced by Labour in the UK has been that it had no significant impacts on employment. Part of the reason that the UK minimum wage has worked so well is that it has been gradually increased a bit faster than inflation and average earnings, reaching a new and much higher benchmark while still giving the job market time to adjust.

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