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Increasing the Minimum Wage in British Columbia a Flawed Anti-Poverty Policy

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Increasing the Minimum Wage in British Columbia a Flawed Anti-Poverty Policy FRASER RESEARCH BULLETIN 2018 Increasing the Minimum Wage in British Columbia A Flawed Anti-Poverty Policy by Charles Lammam and Hugh MacIntyre MAIN CONCLUSIONS ■ As part of its effort to alleviate poverty, Pre- earners in BC had an employed spouse. Of these, mier John Horgan’s government plans on raising 93.1% had spouses that were either self-employed the minimum wage from $11.35 in 2018 to $15.20 per or earning more than the minimum wage. Just hour by 2021, a 34% increase over three years. But, 2.0% of workers earning minimum wage in raising the minimum wage is not an effective way to Canada were single parents with young children. alleviate poverty primarily because the policy fails to provide help targeted to families living in poverty. ■ In addition to ineffectively targeting the working poor, raising the minimum wage produ- ■ In 2015, the latest year of available data, ces several unintended economic consequences 84.3% of workers earning minimum wage in Brit- to the detriment of young and inexperienced ish Columbia did not live in a low-income family. workers. These include fewer job opportunities, Though counterintuitive, it makes sense once decreases in hours available for work, reduc- we explore their age and family situation. In fact, tions in non-wage benefits, a shift towards most of those earning minimum wage are not the automation, and higher consumer prices, which primary or sole income-earner in their family. disproportionately hurt the working poor. ■ In 2017, 55.7% of all minimum wage earners in ■ A work-based subsidy is a more effect- BC were under the age of 25 and the vast major- ive policy since it better targets the benefits to ity of them (77.9%) lived with a parent or other those in need without these negative economic relatives. Moreover, 22.2% of all minimum wage consequences. fraserinstitute.org FRASER RESEARCH BULLETIN 1 Increasing the Minimum Wage in British Columbia: A Flawed Anti-Poverty Policy Introduction second discusses the characteristics of minimum wage earners in British Columbia; the third brief- British Columbia Premier John Horgan’s govern- ly discusses the unintended economic conse- ment plans to raise the minimum wage from quences of raising the minimum wage. The final $11.35 per hour in 2018 to $15.20 by 2021, a 34% section points to an alternative policy option—a increase over three years. On why his government work-based subsidy such as the Canada Workers will do so, Premier Horgan said: “The way to start Benefit—that more directly targets benefits to the down the right path is to find a way to lift people working poor without causing the same negative out of poverty” (Zussman, 2018). However, rais- economic consequences. ing the minimum wage is not an efficient way to provide help targeted to families living in poverty and therefore will largely be ineffective at lifting Evolution of British Columbia’s workers out of poverty. The inability to provide minimum wage since 2002 help targeted at the working poor, coupled with the associated negative unintended economic Before discussing the characteristics of those consequences, is why raising the minimum wage earning minimum wage, it is useful to give the is not an effective way to alleviate poverty. background of the government’s plan to raise the minimum wage to $15.20 per hour by 2021. This publication evaluates increasing the min- Figure 1 displays the evolution of the minimum imum wage as a strategy for alleviating poverty wage in British Columbia over the course of two in British Columbia. It is divided into four sec- decades, with average minimum wage rates from tions: the first discusses the evolution of British 2002 to 2021. To control for inflation, the rates Columbia’s minimum wage since 2002; the are in constant 2021 dollars. Figure 1: Minimum wage rates (2021 $) in British Columbia, 2002–2021 16 $14.95 14 12 $10.84 10 8 $9.53 6 Minimum (2021 $) wage 4 2 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Notes: [1] The minimum wage rates are pro-rated averages of the legislated minimum wage rates. For example, the BC government plans on raising the minimum wage from $14.60 to $15.20 on June 1, 2021, resulting in an average rate of $14.95 in 2017. [2] Ination rates for 2018 and beyond are projections from the BC government’s 2018 budget. Sources: British Columbia, Ministry of Finance, 2018; British Columbia, Oce of the Premier, 2018; Canada.ca, 2017; Statistics Canada, 2018a. fraserinstitute.org FRASER RESEARCH BULLETIN 2 Increasing the Minimum Wage in British Columbia: A Flawed Anti-Poverty Policy From 2002 to 2010, the inflation-adjusted min- Most of this data is for 2017, the year before the imum wage declined 12.1% from $10.84 to $9.53, government announced the increase to $15.20. reflecting the freeze of the nominal minimum Knowing who earns the minimum wage is critical wage rate that started in November 2001.1 for an evidence-based understanding of why the However, after 2010, increases in the minimum minimum wage does not effectively target the wage outpaced inflation. British Columbia’s working poor. In 2017, there were 104,000 work- inflation-adjusted minimum wage is expected to ers earning minimum wage in British Columbia, increase by 56.9%, from $9.53 in 2010 to an aver- making up 5.1% of the working population. age rate of $14.95 in 2021.2 Defining poverty or “low-income” Notably, despite there being a freeze in the nom- While Canada does not have an official poverty inal minimum wage rate for a decade, the infla- line, Statistics Canada’s low income cut-off tion-adjusted minimum wage rate is expected (LICO) is often used as a proxy for measuring to be 37.9% higher in 2021 than 2002. If the absolute poverty.3 There are other measures of minimum wage had grown since 2002 in line with low income in Canada, namely the low income inflation, the wage rate in 2021 would be $10.84 measure (LIM) and the market basket measure instead of the planned rate of $15.20 in 2021. (MBM). However, the advantage of LICO is that it is closely tied to the share of family income that is used to pay for necessities relative to the Minimum wage fails to give help average. Specifically, a family would be at the targeted at the working poor threshold if it is expected to spend 20 percent- age points more of its family income on neces- To assess the minimum wage as a strategy for sities than the average family. This connection alleviating poverty, it is important to measure how to spending on necessities is important because well the program helps those living in poverty. If poverty is often defined as a lack of adequate British Columbia’s minimum wage earners tend basic necessities to sustain long-term health and not to live in poverty, then many of the poor wellbeing (Lammam and MacIntyre, 2016). would not benefit from the policy and much of the benefit would go instead to those who are not Most workers earning minimum wage in British poor. An anti-poverty policy that does not provide Columbia tend not to live in low-income families help focused on the poor is not an efficient way of Based on data from a special tabulation by providing assistance to those in need. Statistics Canada using the Canadian Income Survey (Statistics Canada, 2018b), in 2015, the This section discusses the latest available data latest year of available income data, 15.7% of on the characteristics of minimum wage earners. minimum wage earners in British Columbia 1 The nominal minimum wage was frozen at $8.00 from November 2001 to May 2011. 2 The average rate for 2021 reflects the fact that for a portion of the year the minimum wage will be $14.60 and after June 1 it will be $15.20. 3 A key distinction between poverty and low income is that poverty is the deprivation of necessities and is not depen- dent on the condition of others, while low income is the relative well-being compared to other members of society. For more discussion, see Lammam and MacIntyre, 2016. fraserinstitute.org FRASER RESEARCH BULLETIN 3 Increasing the Minimum Wage in British Columbia: A Flawed Anti-Poverty Policy lived in a low-income family.4 In other words, Most workers earning minimum wage are not 84.3%—or more than four out of five—of British the primary or sole earner in their family Columbia’s minimum wage workers did not live It is certainly counterintuitive that the over- in low income families. whelming majority of British Columbians earning minimum wage do not live in low-income fam- The fact that most British Columbians earning ilies. However, this result begins to make sense minimum wage do not live in low income families once we explore their age and family situation.5 is a critical insight. It helps explain why the two The following data is based on a special tabula- academic studies measuring the effect of raising tion of the Labour Force Survey provided by the minimum wage on poverty in Canada both Statistics Canada (2018c) for 2017, the latest year found that it did not reduce poverty. Campolieti, of data available.6 The data show that most of Gunderson, and Lee (2012) measured the impact those earning minimum wage are not the primary on poverty (using multiple measures of low income or sole income-earner in their family.
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