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Presentation to the Minimum Wage Advisory Panel

Presentation to the Minimum Wage Advisory Panel

We the North
We the North
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Lisbon Room, Ambassador Conference Resort, Kingston, Ontario

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Good afternoon. My name is Smokey Thomas, and I’m president of the Ontario Public Service Employees Union, representing 130,000 hard-working Ontarians who live in just about every community across this province.

I’m very happy to be here today to offer our views on the minimum wage, and I thank you for the invitation. Time is short, so I’ll get right to it.

To me the most interesting thing about the minimum wage debate in Ontario, as elsewhere, is that both sides of the debate claim to have the welfare of working people at heart. Those who favour a higher minimum wage say it will mean a better quality of life for workers and their families; those who favour a lower minimum wage say that a higher one will lead to job loss that will unintentionally hurt the very people it is intended to help.

For trade unionists like me, this is a familiar narrative. Working people who have organized for better lives have faced the same arguments – and threats – from employers for centuries. And while employers have often followed through on those threats and thrown people out of work, it is equally true that working people have only made progress when they organized in the workplace, and in the political realm, and faced down those threats. If employers could be relied on to look out for the interests of working people, the labour movement would never have come into being.

All of which is to say that the arguments of employers’ associations, right-wing think tanks, and conservative politicians who say they support low wages because they care about workers should be viewed with skepticism at best. In business there is a direct relationship between profits and wages, and maximizing profits is often greatly aided by minimizing wages.

Fortunately no one in the current debate is calling for the abolition of the minimum wage in Ontario. There is near-total consensus that employers cannot be relied upon to ensure the welfare of their workers, and that regulation is needed to ensure that workers’ basic standards are met.

The question is, what is the right level for the minimum wage?

Traditionally, economists of all stripes believed that wages could not fall below the level required to ensure the survival of workers and their families, for obvious reasons. But mere short-term subsistence should not be the standard by which a civilized society judges whether wages are adequate. We believe that work, at least full-time work, must pay enough to lift people out of poverty. Our union supports the call to raise the minimum wage to $14 an hour, or approximately 10 per cent above Statistics Canada’s Low Income Measure.

We believe, as Sidney Webb wrote 100 years ago, that if workers’ wages are (quote) “insufficient to provide enough food, clothing, and shelter to maintain them permanently in average health [and with] adequate rest and recreation,1 then those wages are, in fact, providing a subsidy to employers.

Usually subsidies go the other way – we ask richer people to help poorer ones – but in the case of poverty wages the individuals with the least wealth and power in the workplace are subsidizing those with the most.

It is not only workers themselves who pay this subsidy. Families pay as well.

Families pay when children can’t get nutritious food, sanitary housing, dental care, or the normal developmental opportunities that arise from participation in sports, the arts, or other activities.

Families pay when children hardly ever see a parent who is forced to work long hours to compensate for low wages.

Families pay when adult children cannot afford to leave home and begin their own lives.

Communities pay as well.

Communities pay when food banks are forced to feed workers and breakfast programs are needed to feed school children; our health system pays when low wages bring sickness; and local businesses pay when their customers’ pockets are empty.

Ending the subsidy that low-income workers pay their employers is not merely a question of costs. It is a question of basic, fundamental justice.

Employers can take advantage of low-wage workers because those workers, being so many and being unorganized, have little bargaining power in the face of employers, many of whom are multinational corporations who are price-makers, not price-takers. That is why we have a minimum wage in Ontario – to use the power of government to correct the balance of power in wage negotiations.

Here in Ontario, in this conversation, it is not the job of government to take the side of the stronger party. It is the job of government to be the bargaining agent for the weaker party.

Low-wage work is certainly widespread enough that it should attract the attention of Ontario politicians. Right now in Ontario, nine per cent of workers make minimum wage. A whopping 28 per cent of workers make $14.25 or less.2 We are talking about two million workers here – and a potential two million voters.

Of course, employer associations will argue that the government must be a responsible guardian of the economy as a whole, and not just side with certain groups within it. This is certainly a valid point. So I want to talk briefly about how boosting the minimum wage would be of net benefit to Ontario generally.

The employer argument with respect to raising the minimum wage is that employers will respond to a higher minimum wage by reducing staffing levels so as to keep their overall wage bill under control.

We see this in the paper all the time, and it often goes unremarked. Yet it makes no sense. Here’s why: Workers’ production of goods and services is the source of profit for all employers. So when employers cut staff, they are also cutting production and sales, and therefore their own source of income. In truth, if higher wages squeeze profits, most employers will take steps to boost sales, not reduce them.

The fact is, the negative employment effects of raising the minimum wage are minimal, and one of the reasons I say this is that even though the minimum wage is among the most-studied topics in economics, there is no consensus on what the minimum wage does to employment.

As one group of U.S. economists wrote recently, “despite an extensive body of empirical work of increasingly high quality, there is still considerable disagreement over the sign and strength of the [minimum wage] employment effect. Interestingly, this was also the state of the debate a half-century ago.3

In the case of Ontario, which saw significant minimum wage increases in 2008, 2009, and 2010, we have seen no studies which connected the employment changes since then to the change in the minimum wage.

If the job losses from increasing the minimum wage fail to materialize, it is for two reasons: first, because employer behaviour is complex; and second, because labour is not just another input.

Fine-grained studies of what happens when the minimum wage goes up show that employers do not simply slash jobs. Instead, they come up with a wide variety of adaptation strategies. These might include, to mention a few: measures to increase employee performance; better matching of employee hours to work flows; increased use of cross-training and multi-tasking; more investment in training; more investment in machinery and equipment; reduced waste of electricity, water, and other non-labour inputs; and new marketing strategies.4

All of these are measures designed to improve labour productivity. They lead not to the loss of jobs, but rather to the more efficient use of labour.

And that, most employers would agree, is a good thing.

A problem with the model that says higher wages lead to layoffs is that it ignores the double role of workers in the economy. Workers are not only workers; we are also consumers.

Low-income workers – because they are low-income – spend a much greater proportion of their income than high-income workers, and they spend it close to home. They don’t save money, they don’t buy international mutual funds, and they don’t go on trips to the Bahamas. They spend their money locally on the things their families need.

When you put money in the pockets of low-income people, you put it directly into local economies. And that is exactly what Ontario needs right now.

There is more GDP per capita in Canada, and in Ontario, than there has ever been. Yet in the last three decades, median incomes have stagnated. Households are working longer hours just to stay where they are. Personal debt is at record levels.

Where the money has gone is no mystery. Right now, Canada’s corporations are sitting on more than $500 billion in cash – not investments, but cash – that they see no reason to spend because consumer demand is too weak.

Just a few months ago, then Bank of Canada governor Mark Carney took the unusual step of telling Canada’s corporations that if they couldn’t think of where to invest that cash, they should return it to their shareholders.5

He might also have suggested sharing it with their workers. Because the problem of growing inequality cannot be solved without a transfer of wealth from top to bottom.

For the last three decades we have seen the share of the economy that goes to wages decrease and we have seen the share that goes to profits increase.6

There are two ways to address this problem. The first is to use the tax system, public services, and personal transfers to individuals from government; the second is through increasing pay levels.

There are many ways to help workers earn more. The province could introduce legislation to encourage unionization so as to boost workers’ bargaining power. Or it could enhance the enforcement of basic employment standards and apply those standards to all workers. But the simplest, most direct way to reduce inequality, lift people out of poverty, increase productivity, and strengthen our economy is to dramatically raise the minimum wage, and do it as soon as possible.

I encourage you to recommend exactly that to the Premier.

Thank you.


Notes

1 Webb, Sidney (1912). “The Economic Theory of the Legal Minimum Wage.” Journal of Political Economy (20), 986-87.

2 Block, Sheila (2013). Who is Working for Minimum Wage in Ontario? Toronto: Wellesley Institute, 7.

3 Hirsch, Barry T., Bruce Evan Kaufman, and Tetyana Zelenska (2011). Minimum Wage Channels of Adjustment. Andrew Young School of Policy Studies Research Paper Series No. 11-34, November, 9. Available at http://ftp.iza.org/dp6132.pdf.

4 Ibid., 26-30.

5 Carmichael, Kevin, Richard Blackwell and Greg Keenan (2013). “Free up ‘dead money,’ Carney exhorts corporate Canada.” The Globe and Mail, Aug. 23, 2012. Web edition: http://www.theglobeandmail.com/report-on-business/economy/free-up-dead-money-carney-exhorts-corporate-canada/article4493091/

6 Brennan, Jordan (2012). A Shrinking Universe: How concentrated corporate power is shaping income inequality in Canada. Ottawa: Canadian Centre for Policy Alternatives, 15.