A living wage or a minimum wage? Call it what you will, says Brian Lee Crowley, but the end result is the same: higher prices for consumers and a barrier to entering the labour market for young people.
By Brian Lee Crowley, April 1, 2016
The recent UK budget announced the government’s intention to put in place a minimum “living wage” of £9 an hour by 2020. Attentive followers of public debate will have noticed that this emotive terminology of the “living wage” is increasingly being substituted for the bureaucratic-sounding “minimum wage.” A rose by any other name: to the extent that a living wage forces employers to pay more for labour than market conditions would justify there is little real difference between the two concepts.
Which brings us back to the emotions evoked by the new term. In my experience when a new term is introduced for a widely understood and used one, it is usually a ploy by reformers to win an argument by emotion or obfuscation rather than reason. Think of the benign sounding “social welfare” to replace “the dole” or dubbing inheritance tax a “death tax.”
From that perspective I can appreciate the marketing appeal of the living wage. It evokes images of a struggling single mum eking out a meagre existence for herself and her children working at a job whose pay is so low no one should or could be expected to live from it.
But notice that this appeal is premised on the idea that there are lots of households out there actually trying to live from a single minimum wage worker’s earnings. Are there?
Well, actually, no. In fact, according to Statistics Canada, a mere 2.2% of those earning the minimum wage were unmarried heads of household with at least one minor child.
Nearly nine out of every ten Canadians earning the minimum wage in 2012 lived in households whose collective income was above the Low Income Cut-Off (LICO), a widely used measure of relative poverty. In other words using a minimum wage increase to tackle poverty actually misses its mark.
As to the composition of the group actually earning the minimum wage we know that nearly three fifths of them were teenagers and young adults under the age of 25. About the same proportion of minimum wage earners were living with family, while a fifth were married to a spouse who was also employed. So far from helping out the poor single parent struggling alone on the minimum wage, high “living wages” actually most affect young people getting their first job, when they have few skills and have the least value to an employer, just as they chiefly boost the income of families who are already doing well.
So rather than selling high minimum wages as a solution to poverty (which they aren’t) perhaps we should look for a more accurate rebranding than the “living wage.” What might that be?
Well, consider that when Seattle raised its minimum wage from $9.32 to $15 an hour, this amounted to imposing an annual tax on minimum-wage employers of $11,360 per full-time employee. I could avoid that tax by hiring fewer people, giving my employees fewer hours or by substituting machinery for workers. So we could call such a policy “the tax on jobs.”
I can hear the objections already. No, no, the critics will say. Taxes go to the government. Higher wages go to the employee. Please; if the government forces me under pain of legal penalty to do something with my money, then the government is commandeering my money for its purposes. I call that a tax.
An alternative way of rebranding high minimum wages would be to consider their effects on the consumers of goods and services that employ low wage workers. Logic would indicate that low wages would be concentrated predominantly in industries where many of the customers don’t have a lot of money, i.e. the poor. An employer that can’t cut jobs or hours, or mechanise, has to put up his prices to survive. Hence you see the emergence in Seattle of “living wage surcharges” and price increases in restaurants etc. That poor harassed single mum will really thank you for making a treat at McDonald’s something she has to deny her kids more often. So instead of “living wage” how about “higher prices”?
Finally, recall it is young people, not the poor, who predominantly earn the minimum wage, so it is properly thought of as an “entry wage” into the labour market. The higher you fix that wage, the more choosy employers will be about whom they hire, and the fewer hours of work they’ll offer. Yet young people constantly complain that they can’t get work because they have no experience. That first job is valuable chiefly for the evidence it provides of a young person’s productivity, discipline and trustworthiness. Low minimum wages help young people by making that first job more accessible, and putting them on the ladder to higher wages later. So my final alternative to the “living wage”? The “youth penalty.”
Brian Lee Crowley (twitter.com/brianleecrowley) is the Managing Director of the Macdonald-Laurier Institute, an independent non-partisan public policy think tank in Ottawa: www.mli.dev.pcomms.ca.