BC government pay raise highlights the growing income gap

August 19, 2008

The recent steep pay hikes for BC’s senior bureaucrats triggered quite a controversy. Handing out raises in the 20 to 43% range at the top end does seem a bit rich coming from a government that refuses to increase the minimum wage even by a few cents.

BC’s minimum wage has been stuck at $8 per hour since 2001. A minimum wage earner working 40 hours per week all year makes only $16,640, which is considerably less than Statistics Canada's low-income cut off (or “poverty line”) for a single person in a major city – which was $21,666 in 2007. It is less than the low-income cut off for even the smallest urban area – $16,968.

The stark contrast between the huge pay raises of top government bureaucrats and BC’s minimum wage illustrates the growing polarization of income in Canada. Over the past fifteen years or so, we have witnessed an increased concentration of income at the top, while wages and earnings have stagnated in the middle and fallen at the bottom.

A recent Statistics Canada report shows that while BC managers saw an average increase of 15% in their hourly wages between 1997 and 2007, the proportion of jobs paying less than $10 per hour has barely budged over the past decade, a period during which BC’s unemployment rate dropped from 8.4% to 4.2%.

One would expect that years of low unemployment rates and strong economic growth would improve the economic well being of those at the lower tiers of the labour market. Wouldn’t employers need to offer higher wages and better working conditions in order to attract and retain people in our tight labour market? That’s the conventional economic thinking, but it’s not working out in practice. We only need to look to BC Stats’ latest numbers to find out that in traditionally low paid occupations, such as trade and accommodation and food services, the average hourly wage rates have increased by a meager 1% between 1998 and 2007 (when inflation is taken into account).

As the labour market becomes more and more unequal, the need for government action becomes more urgent. There are many different policies that can help reduce inequality, but a good starting point would be to increase the minimum wage to a level that ensures that no full-time full-year worker lives in poverty.

BC’s minimum wage has been frozen at $8 for a staggering seven years and, taking inflation into account, it is worth 11 per cent less today than it was in 2001. Back then, BC had the highest minimum wage in Canada. However, other provinces have since moved on. In fact, BC is the only Canadian province that did not increase its minimum wage this past spring. As a result, we have slipped down the rankings to having one of the lowest minimum wages of the country, on par with the Atlantic Provinces (with the notable exception of Nova Scotia, which at $8.10 pays a higher minimum wage than BC).

And that’s not all. A number of provinces have committed to further increases over the next several years, including some of our fellow bottom-ranked provinces. For example, Newfoundland has just announced plans to reach a $10 minimum wage by 2010 and PEI’s is scheduled to rise to $8 later this year.

The BC government should jump on the bandwagon, not just because the rest of Canada is doing it, but also because you can’t live on $8 per hour – especially here in BC. Legislating a decent minimum wage can be an effective anti-poverty tool and is cheaper than providing direct income supports to the working poor. Along with setting the minimum wage to a level that lifts individuals out of poverty, the government should index it to inflation to ensure that the real wages of the lowest paid workers do not erode over time.
Critics claim that minimum wage policies have a limited effect because few people actually work for the minimum wage. It is true that only 4.6% of BC’s paid employees earned minimum wage in 2006 according to BC Stats. However, a recent Statistics Canada study shows that more than 16 per cent of BC employees – 300,000-plus people – worked for less than $10 per hour in 2007. Increasing the minimum wage to $10 per hour would benefit this much larger group of workers who desperately need a raise.

That being said, policy decisions are seldom clear-cut, and it is important to consider the potential problems with a minimum wage increase as well.

Some critics consider the minimum wage a “blunt instrument” to fight poverty, arguing that minimum wage workers are mainly teenagers or youth, many of whom are not poor because they live at home with their parents. Let’s look at the numbers.

In 2006, BC Stats analysis reveals that the majority of minimum wage workers were indeed between the ages of 15 and 24, although a substantial minority of 42% were 25 or older. Similarly, among the much larger number of workers who earn less than $10 per hour, about 45% were 25 or older (latest data is for 2003 and at the national level but the figures for BC should be very similar). Clearly, a large number of people are trying to live on and support their families on low wages and would benefit from an increase in the minimum wage. Women and recent immigrants are disproportionately affected.

While increasing minimum wages might conceivably benefit some teenagers who are not technically poor, this is but a small price to pay for ensuring that those who are trying to support themselves through full-time, full-year work can escape poverty. Further, higher earnings for youth are not a bad thing, especially given the large hikes in BC post secondary tuition fees over the past decade.

The main argument used to stifle calls for a minimum wage increases, however, is that it might cause low wage jobs to be cut because some employers would not be able to afford it. While the research findings on this question are certainly not unanimous and individual studies can be endlessly cited on one side of the debate or the other, mainstream economists’ opinion has shifted towards the conclusion that “modest increases” in minimum wages do not kill jobs. In fact, a joint statement issued in October 2006 by over 650 US economists, including 5 Nobel laureates, stated that “a modest increase in the minimum wage would improve the well-being of low-wage workers and would not have the adverse effects that critics have claimed.”

The key here is the size of the increase. Some studies point to negative employment effects, but when these studies are reviewed carefully, it turns out that modest job losses are found in response to fairly large increases in minimum wages. But sharp one-time hikes are only necessary if the government leaves minimum wages unchanged for long periods. They can be easily avoided by indexing minimum wages to inflation. Employers would benefit from the increased certainty – with scheduled annual adjustments they would know what to expect and could plan for the upcoming increases in their wage bill.

I’m not opposed to paying for top talent and I certainly want our ministers to be advised only by the best and brightest. But I also want BC to be a province with little or no child poverty, where there are no “working poor” and the fruits of economic growth are shared more equitably among our fellow citizens.

Iglika Ivanova is the Public Interest researcher with the BC office of the Canadian Centre for Policy Alternatives.