Seattle’s city council has passed a law raising its minimum wage from $9 an hour to $15 an hour. Some advocates for raising the minimum wage say it will help pull people out of poverty, while opponents say it will increase unemployment. It will be worth watching to see what we might glean from our neighbours’ experience.
The increase will be phased in, beginning April 1, 2015. Employers with more than 500 employees have until 2017 to raise the wage to $15 for their workers, and then raise it every year according to inflation. Smaller employers have until 2021 to reach that point, and will be required to pay their workers up to $17.25 an hour by 2024.
Does raising the minimum wage help or hinder? It depends on whom you ask.
“The most commonly cited purpose of minimum wages is to increase the incomes of society’s low-income workers,” says a 2009 Fraser Institute report called The Economic Effects of Increasing British Columbia’s Minimum Wage. “But in reality, minimum wages are simply incapable of achieving the intended results.
“A large body of research from Canada and around the world demonstrates convincingly that high minimum wages lead to lower employment levels, fewer benefits, less training and lower school enrolment.”
However, Evan Brander, a doctoral candidate at the University of Toronto’s School of Public Policy and Governance, concluded from his research into Canadian data that minimum wages have a small negative impact on employment in Canada and that minimum wages could be raised as a tool to reduce poverty.
In the U.S., John Schmitt of the Washington, D.C.-based Center for Economic Policy and Research came to similar conclusions. Further, he surmised, low-wage employers could benefit from a higher minimum wage because staff turnover would be reduced. They would have more experienced and able employees, and would save on recruitment and training costs.
Raising the wage drastically could have unintended consequences, though. Bill Hobson, Seattle’s most prominent advocate for the poor, favours higher wages in principle. He is director of the Downtown Emergency Service Center, Seattle’s largest employer of social workers and counsellors to the homeless, many of whom make less than $15 an hour.
“In principle, I’m all for the higher wages,” Hobson told the Seattle Times. “But I can’t pay it. Without some major infusion of cash from the city, I would have no choice but to cut services.”
Ideally, most of us would like to see all workers adequately paid, but ideals often collide with reality. When B.C. Federation of Labour president Jim Sinclair met Premier Christy Clark in March, he urged her to raise B.C.’s minimum wage to $13 from $10.25 an hour. But Clark said the economy is still too fragile for that.
“We want to make sure that as the minimum wage goes up, it goes up in step with the rest of the economy,” she said.
In his book, Capital in the Twenty-First Century, French economist Thomas Picketty argues that inequality is not an accident, but rather an aspect of capitalism that can be reversed only through state intervention. He sees a minimum wage as one tool to combat that inequality, but raising the wage too sharply, he says, could result in job losses. The best way to increase wages and reduce wage inequalities in the long run, says Picketty, is to invest in education and skills.
If a minimum wage is necessary — and we believe it is — it should be raised from time to time, but we should look to quality education and training to lift people out of the minimum-wage well.
