Newfoundland and Labrador Federation of Labour
Submission to the Minimum Wage Advisory Committee Government of Newfoundland and Labrador Minimum Wage Review September 2012
About Us ....................................................................................................................................... 1 Executive Summary ................................................................................................................. 2 Introduction ............................................................................................................................... 3 Minimum Wage Increases and Employment I: Local Experience ............................ 6 Minimum Wage Increases and Employment II: Empirical Tests and the Minimum Wage Debate…………………………………………………………………………………12 The Social Benefits of Raising the Minimum Wage: Gender Equity, Income Equality, and Labour Force Mobilisation ...................................................................... 16 What’s been happening to the economic pie? ............................................................. 20 Case against a two-tiered minimum wage .................................................................... 24 Recommendations: Annual Indexation of the Minimum Wage ............................. 28
1
About Us We are the Newfoundland Federation of Labour (NLFL). For 75 years we have been working to advance the rights of workers: from minimum wage, health and safety standards legislation through to pay equity, income security, gender equity, poverty alleviation and the full development of our collective human creative capacities.
We represent 25 affiliated unions, 500 union locals and over 65,000 working citizens and their families in every sector of our province.
What thus separates us from other
professional associations and advocacy groups is that we have a more global perspective on social and economic policy. Because of this we are constantly being tasked with the job of considering the differential effects policy will have on all members of our society: in all regions of our province and across all sectors of our economy. As such we do not have the luxury of pushing a narrow, myopic, agenda with respect to economic development and modernisation.
The very diverse nature of our affiliates and the workers they represent forces us to be ever mindful of the foundation of democracy: that we represent people. Indeed, our very constitution mandates that we work to improve the welfare of all society.
We thus welcome this opportunity to present our analysis and recommendations to the provincial government’s Minimum Wage Review Panel.
Newfoundland and Labrador Federation of Labour Minimum Wage Submission
2
Executive Summary Our brief will show that the Newfoundland and Labrador experience with minimum wage increases has been a stunning success. We will show how the increases have had a positive impact on both the incomes and employment of workers, especially women and youth. Indeed the story for women workers has been striking in its advance for women over the last decade with substantial gains in incomes, coupled with a narrowing of the income disparity between men and women’s hourly rate of pay. In 2000, the average hourly wage differential between men and women was 23.5% or women’s average hourly rate of pay was just 75.6% compared to her male counterpart. Today the hourly wage difference has narrowed to 14.4% or women’s average hourly rate of pay stands at 85.4% per compared to men. A good deal of this can be attributable to the hikes in the minimum wage. Our brief will show that the experience in Newfoundland and Labrador of raises to the minimum wage (67% since 2005) have helped to lift low-wage workers who were seriously at risk of being left behind in our province’s new prosperous times.
We will tell the story of how instead of having a negative impact on workers, their incomes and employment prospects, the opposite has occurred. We will tell a story of how a rising tide should lift all boats, but for that to happen we cannot rely on the marketplace to deliver that lift. We will tell a stunningly positive story based in the reality of labour force data of how this province decided to take a role in sharing economic prosperity.
And we applaud the efforts of the government in it goal to make this a better place to live for all Newfoundlanders and Labradorians by improving the living standards of all.
And most importantly, we will recommend ways to ensure the progress that has been made over the past decade is not eroded or diminished.
Newfoundland and Labrador Federation of Labour Minimum Wage Submission
3
Introduction Minimum wage laws, as part of the provincial parliament’s Minimum Standards legislation, are critical for the thousands of working people in our province who do not have the capacity to collectively bargain in their workplaces. They rely on the peoples’ house, the provincial government, to protect and uphold their interests particularly with respect to their workplace rights.
The minimum wage is an important part of the public policy mix required to improve and enhance living standards, to narrow the income gap, especially between men and women, to tackling poverty, to enhance equality in our society and to value work. New research shows higher wages for those in the lower and middle income brackets are extremely critical for dealing with the widely acknowledged epidemic of inequality which is negatively correlated with productivity and economic growth rates.
In addition to the transfer of wealth to Newfoundland and Labrador families as a result of strong access to public services such as health and affordable education, one of the most important policy levers (outside of the ability of unions to deliver a better sharing out of the economic pie through collective bargaining) is what has been accomplished by provincial governments with respect to their actions to raise the minimum wage in recent times.
All citizens deserve to be paid a decent wage for the work they do. And in a growing economy, all citizens deserve to share in prosperity, including low-paid workers who spend most if not all their earned incomes in local and regional economies, purchasing local goods and services. Higher income earners, conversely, are more likely to spend higher portions of their incomes buying goods and services from other jurisdictions. The ability to shop online has only increased the capacity of higher income earners to source their consumption from outside their locales.
Newfoundland and Labrador Federation of Labour Minimum Wage Submission
4 Further, it is important to note that prior to the last round of minimum wage increases introduced by the PC government beginning in 2005, increases to the wage had been infrequent and minor in nature. For example, the minimum wage was increased by a mere 25 cents during the 5-year period between April 1991 and September 1996. The result: the value of the minimum wage fell substantially in real terms over time. The net result was that by 2006, someone earning minimum wage was earning considerably less than someone earning minimum wage three decades earlier.
In submissions to the provincial government during the last review process in 2008-09, the NLFL, one of the leaders in the Make Work Pay Coalition, detailed our concerns with the incidence of low pay in our province and the eroded value of the minimum wage.
The provincial government agreed with us that raising the minimum wage to $10 an hour by 2010 was a necessary progressive policy decision to ensure that a large segment of the working population were not left behind during the province’s economic prosperity. They agreed that a rising tide should lift all boats and that the economic wellbeing of low-paid Newfoundlanders and Labradorians could not be left to the daft touch of the invisible hand.
In July 2010 when the wage reached $10 an hour, the minister responsible for the policy decision, noted that “this increase is another way the…government is improving the quality of life of Newfoundlanders and Labradorians and making our province more competitive with respect to attracting talent. Increasing the minimum wage helps individuals and families achieve increased self-reliance and contributes to a stronger provincial economy.” (http://www.releases.gov.nl.ca/releases/2010/hrle/0630n02.htm)
For all of the above reasons it is our position that the minimum wage should be automatically increased on an annual basis in line with annual rates of provincial inflation and or average wage and salary increases. In the penultimate section to this brief we will outline three different possible mechanisms for achieving the indexation of the minimum wage. We think such a mechanism will create a stable and predictable environment in
Newfoundland and Labrador Federation of Labour Minimum Wage Submission
5 which both employers and employees will be able to establish their expectations and formulate their future plans.
To put this in perspective, on the one hand some in the Newfoundland and Labrador business community (mostly their industry associations) are asking this panel to recommend freezing the minimum wage. They argue that the job is done. That they cannot afford to pay more. That higher wages will kill jobs for the lower skilled, reduce hours of available work. They bizarrely argue that hikes in minimum wages actually hurt those they are intended to help. We will disprove this by detailing the Newfoundland and Labrador experience with minimum wage increases. At the same time they complain about the minimum wage, they argue that the biggest challenge facing Newfoundland and Labrador businesses is attracting labour. And some argue that there is no need to increase the minimum wage as the marketplace (or tightening labour market) will push wages up anyway. Yet if that were the case why the vitriolic opposition to even minor, cost of living increases for minimum wage earners? The reality is without mandated increases too many people would be left behind and as our experience shows, and the data bears this out increases to the minimum wage have helped young workers and women, particularly. Indeed without those increases, women in the Newfoundland and Labrador labour market would be falling seriously behind.
Newfoundland and Labrador Federation of Labour Minimum Wage Submission
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Minimum Wage Increases and Employment I: Local Experience We recognize that business associations and their members have traditionally lobbied against increases in the minimum wage. They have typically done so either via recourse to brittle theoretical micro-economic models or a natural myopia which, like the theoretical micro-model, is plagued by a series of aggregation errors and compositional fallacies. We will return to some of these issues below, but we will begin with a presentation of the facts derived from our own experience with minimum wage increases in the province and then look at some of the scientific studies on minimum wage increases and its effect on employment in other national and regional jurisdictions.
We believe that experience should be the guide to pragmatic public policy formation. The province’s GDP in 2000 was valued at $13.9 billion. It has more than doubled in 2011 to over $33 billion. Wages and salaries as a share of GDP stood at $5.4 billion in 2000 and $9.78 billion in 2011. This represents the lowest share of GDP going towards wages and salaries of any provincial jurisdiction. According to Statistics Canada in 2010, Newfoundland and Labrador has the second lowest family median income in the country and with respect to individual median incomes ($25,620 for NL 2010), our province was the lowest in the country and considerably behind the national average of $29,290.i
We also know that economic growth is predicted to continue to be strong in our province, given healthy capital investment, wage growth, consumer spending and strong consumer confidence. Newfoundland and Labrador, Saskatchewan and Alberta continue to lead the country economically. And just as importantly, and according to the NL government’s Economy 2012, the strength of the provincial economy is also evident in the robust growth in final domestic demand (FDD). Final domestic demand measures the demand for goods and services within the province by consumers, business and government increased by 4.7% in 2011.ii
Between 2000 and 2011, employment grew by 26,600 jobs (198,800 in 2000 compared to 225,400 employed in 2011), about half of those gains have come since 2005. Notably Newfoundland and Labrador Federation of Labour Minimum Wage Submission
7 this was at the same time that the Newfoundland and Labrador government started to restore the value to the province’s minimum wage. (Please note, all of the labourforce data in our submission has been drawn from the LabourForce Historical Survey)
It is often posited that increases in the minimum wage hurt young workers because they force minimum wage employers to hire more experienced, older, workers to offset increased costs. While this is plausible micro-economic reaction on the part of some employers there is simply no basis for this argument at the aggregate level.
If we look at the data from 2000-2011, we can draw the conclusion that minimum wage increases have not hurt young people with respect to their employment picture. Indeed almost all the metrics point to something else entirely. Namely, if anything there is a positive correlation between minimum wage increases, employment and youth participation rates.
According to the Labour Force Historical Survey the number of 15-24 year-olds employed in 2000 was 27,300 and they worked 776,100 hours whereas in 2011 there were 28,200 youth workers providing 779,700 hours of work. Over the same time youth participation ratesiii increased from 47.4 percent to 58.4 percent and the unemployment rateiv fell from 25.4 percent to 20.9 percent despite the increased participation rates. All of this was in the context of declining overall unemployment rates from 16.6 percent to 12.7 percent in 2011.v
So despite the decline in the size of the population of 15-24 year olds, they have maintained and increased in terms of number employed and increased their participation in the labourforce since 2000. You might expect that as the size of the population of young people declines, we’d also see a decline in the number employed in that age category, but that has not been the case.
On the other end of the age scale (the 55+ cohort), the evidence seems to indicate that the increases in the minimum wage if anything helped in the activation of workers 55 and
Newfoundland and Labrador Federation of Labour Minimum Wage Submission
8 over. In 2000 for example, there were 15,800 55+ workers employed whereas by 2011 there were 40,900 55+ employed providing nearly three times the amount of hours of work as in 2000. Even when one holds steady for the demographic shift, there has been an incredible increase in the percent of 55+ citizens working.vi
If there is no empirical evidence to support the claim that minimum wage increases hurt youth and 55+ employment and participation rates there is equally no evidence that such increases negatively impacted employment in the low paid sectors of the economy. Employment in the sales and service occupations (including hospitality, retail, home care, etc.) grew by 10.2 percent from 50, 900 jobs in 2000 to 56,100 in 2011.
One of the arguments used to keep wages low is that this somehow helps reduce youth unemployment and conversely raising the wage results in young people losing jobs. In other words, raising the wage hurts those it is supposed to help. Not to be flippant but such an argument would have us assuming that low wages will deliver low unemployed. As we know from our own experience in Newfoundland and Labrador that is not the case. Low wages result in low demand in the economy and often low demand leads to higher unemployment.
This argument also contradicts some pretty basic economic and business principles. No employer hires labour for the sake of having workers around. So the fact that labour is cheaper, in and of itself, never guarantees that more workers will be hired. Why do employers hire workers? To work: that is to produce something. Employment is a derived demand, dependent on sales of whatever good or service workers produce. Their employment depends mostly on whether there’s enough demand for their output, so that their employers can profitably produce it. That, in turn, depends on a whole stable of economic variables, macro and well as micro, including whether working families have the purchasing power to buy back the stuff they produce.
Newfoundland and Labrador Federation of Labour Minimum Wage Submission
9 The story for young people is: more young people working, more hours, for more pay. And it is a good thing, given the skyrocketing costs of housing/rent in Newfoundland and Labrador. (Data below is from CMHC.)
St John's CMA Avg. MLS® Price $300,000 $250,000 $200,000 $150,000 Avg. MLS® Price $100,000 $50,000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
$0
NL: Avg. MLS® Price $300,000 $250,000 $200,000 $150,000 $100,000
NL: Avg. MLS® Price
$50,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
$0
Newfoundland and Labrador Federation of Labour Minimum Wage Submission
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St. John's CMA Rental Costs 2 bedroom $900 $800 $700 $600 $500 $400 $300 $200 $100 $0 2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
CMA rent
NL Rental Costs 2 Bedroom $900 $800 $700 $600 $500 $400 $300 $200 $100 $0 2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
2bdrm Rent
Between 2000-2011, average housing prices for Newfoundland and Labrador have increased by a staggering 152.78%, and have increased nearly 165% in the St. John’s CMA. Rental costs have also increased significantly and most dramatically since 2007, climbing 37.45% on average in NL and 40% in the St. John’s CMA region.
Newfoundland and Labrador Federation of Labour Minimum Wage Submission
11 Of course, we know that a large number of renters are under the age of 25 and/or lowincome families. In addition, those feeling the pinch of soaring housing prices are young families. They are feeling the pinch of the economic boom.
In the meantime, examining the labour force data from 2000-2011, we can draw the conclusion that minimum wage increases have not hurt young people with respect to their employment picture. Indeed all the metrics point to something else entirely.
Newfoundland and Labrador Federation of Labour Minimum Wage Submission
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Minimum Wage Increases and Employment II: Empirical Tests and the Minimum Wage Debate Outside of debates over price formation and income distribution, the debate over the real wage and its relationship to the volume of employment (of which minimum wages are subset) is one of the most contested areas of economic theory and empirical testing. The truth is that even before the Keynesian revolution most economists who specialised in labour markets did not pay much attention to the classical liberal labour market model.
To be sure between the end of the 1970s and the mid-1990s the consensus view had been by a number of economists that increases in the minimum wage would suppress the volume of employment and or denude the real wage via inflation (the purchasing power of low paid workers) thus having contradictory consequences to the stated policy goal of raising the minimum wage. It is important to note that this 20 year hiatus from the preexisting consensus was more theory driven rather than based on empirical results. That is to say, it was a policy prescription derived from a largely ‘in theory only’ faith. However, by the mid-1990s this ‘in theory only’ policy prescription crashed on the harsh reality of empirical verification.vii In 1992 Economists David Card and Alan Krueger set up a state of the art econometric test which examined the proposition that increasing the minimum wage would decrease employment and or the real wage. Their finding was a sobering revelation to the zealots of the profession. The summary of their test reads: On April 1, 1992, New Jersey's minimum wage rose from $4.25 to $5.05 per hour. To evaluate the impact of the law we surveyed 410 fast-food restaurants in New Jersey and eastern Pennsylvania before and after the rise. Comparisons of employment growth at stores in New Jersey and Pennsylvania (where the minimum wage was constant) provide simple estimates of the effect of the higher minimum wage. We also compare employment changes at stores in New Jersey that were initially paying high wages (above $5) to the changes at lower-wage stores. We find no indication that the rise in the minimum wage reduced employment (emphasis added).viii
Newfoundland and Labrador Federation of Labour Minimum Wage Submission
13 Since the publication of Card and Krueger findings many economists have become increasingly vociferous in their denunciation of the canonical model and its policy prescriptions. For example, in a 2006 statement by 650 US economists, including five Nobel Memorial Laureates and six past presidents of the American Economics Association, said minimum wage increases “can significantly improve the lives of lowincome workers and their families, without the adverse effects that critics have claimed.”
Similarly, recent research (since the 1990s) concludes that, and inline with our provincial experience, the impacts of minimum wage increases are positive. It is not surprising then that large number of Canadian economists have concluded that: There is a common, but incorrect, assumption that higher minimum wages destroy low-wage jobs and increase unemployment among those they are most intended to help. Modern economic research has indicated, however, that the negative employment effects of minimum wages are negligible and can be overwhelmed by the positive impacts of minimum wages on labour force participation and consumer spending. In other words, it is more likely that higher minimum wages are associated with enhanced employment and income opportunities for low-wage workers. Joseph Stiglitz, Nobel Memorial Prize (2001), who chaired Bill Clinton’s Council of Economic Advisors (1995-97), and was the chief economist at the World Bank (19972000), wrote a letter to the President of the United States with fellow economists this summer that stated in part: In recent years there have been important developments in the academic literature on the effect of increases in the minimum wage on employment, with the weight of evidence now showing that increases in the minimum wage have had little or no negative effect on the employment of minimum wage workers, even during times of weakness in the labor market. A minimum wage increase can also serve to stimulate the economy as low-wage workers spend their additional earnings potentially raising demand and job growth. Therefore, pursuing a higher minimum wage at this juncture will not only provide raises for low-wage workers but would provide some help on the jobs front as well.ix The latest comprehensive study on minimum wage was released in 2011: “Minimum
Newfoundland and Labrador Federation of Labour Minimum Wage Submission
14 Wage Effects Across State Borders: Estimates Using Contiguous Counties” by Arindrajit Dube, William Lester and Michael Reich who are all affiliated with the Institute for Research on Labor and Employment of the University of California, Berkeley. The economists analyzed the employment effects of minimum wages in the United States between 1990 and 2006. Their conclusion is rather straightforward: higher minimum wages did not destroy low paid jobs. “We find strong earnings effects and no employment effects of minimum wage increases”, the authors conclude. http://newscenter.berkeley.edu/2010/12/01/minimumwagejobs/ We have thus arrived full-circle: minimum wage increases are if anything a net benefit to the economy as whole.
The reasons for this are no doubt complex in nature. Most obviously the micro-economic responses of individual employers are eventually swamped by the macro-economic consequences of rise in the minimum wage. That is to say, the initial response of marginal employers is to postpone hiring and to concentrate on the most efficient use of their existing employees in order to counter the increased unit cost of labour. Eventually, however, in response to the increased aggregate demand generated by the self same increase in workers’ purchasing power (as well as the increased in the purchasing power of other workers non-reliant on the minimum wage), even marginal employers find it profitable to hire new employees in order to meet the new level of aggregate demand for their goods and services.
Common sense dictates a raise in the minimum wage is mostly realised by local employers in the sale of extra goods and services at the local and regional level. Far from fearing a generalized rise in the minimum wage, local employers ought to embrace it as increased minimum wages largely returned to them in the form of increased sales. From the point of view of individual employers, however, this is a counter intuitive result as it flies in the face of their myopic short-term reaction to what appears to them as a permanent increase in their costs and thus a decline in their margins. As such their initial
Newfoundland and Labrador Federation of Labour Minimum Wage Submission
15 reaction is to oppose an increase in the minimum wage even if over the medium and long term such increases will boost rather than diminish their profitability.
Given the restructuring that has taken place in response to globalisation over the last thirty years almost none of the minimum wage jobs are in the traded sector (such jobs have long since been moved overseas because there is almost no wage rate that could make them competitive), the rationale for increasing the minimum wage is further bolstered: as low paid workers spend almost all their income in the local economy and local employers do not face outside competition. That is to say, the increase in the purchasing power of low-paid workers is spent within their communities at locally owned businesses and franchises.
Furthermore, as the minimum wage increase is made
universal by legislative means all local competitors face the same increase in their unit labour costs and thus none of the local employers face a discriminatory cost structure visà-vis their local competitors.
Newfoundland and Labrador Federation of Labour Minimum Wage Submission
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The Social Benefits of Raising the Minimum Wage: Gender Equity, Income Equality, and Labour Force Mobilisation Besides increasing the purchasing power of low-paid workers and thereby the volume of sales at local providers of goods and services, increases in the minimum wage may also have the salutatory effect of ameliorating income disparities between female and male workers and income disparities between the bottom quintile and middle quintile of household incomes. Further as we have already seen, increases in the minimum wage are positively correlated with higher labourforce participation rates, implying lower tax transfers and higher tax receipts thus improving the fiscal health of the provincial government.
According to data from the Labour Force Survey, a full 30 percent of working people in our province in 2006 worked for $10 an hour or less. This was double the national average of 15 percent and an astounding reflection of our province as a low-wage economy. In terms of gender, the number was even more startling – a full 40 percent of working women earned $10 an hour or less. At the time we had the highest poverty and the lowest average wages in the country.
Keeping to our analysis during the time period of 2000-2011, we get a very clear picture of just how important minimum wage increases were to wage growth for women workers. We have chosen to examine the number of people who earn not just minimum wage, but who would be considered in the lowest pay category (under $12 an hour). In 2000, 36.3 percent of men earned under $12 an hour. In 2011 this has dropped to 15.4 percent. In 2000, 57.6 percent of women earned under $12 an hour. In 2011, the number of women in this low-pay category had declined to 27.7 percent.
As well, in 2000 an astounding 68.2% (two-thirds) of women (compared to 41.3% of men) earned less than $500 per week. In 2011, the share of women earning under $500 per week fell to 41.3% (still a high percentage), but representing a significant decrease of about 27%. This was largely due to minimum wage increases. The share of men earning Newfoundland and Labrador Federation of Labour Minimum Wage Submission
17 under $500 a week fell to 19.5%. (It should be noted that Newfoundland and Labrador has the lowest percentage of people in part-time work and therefore the weekly earnings can not be attributed to a disproportionate number of labourforce participants being employed in part-time jobs. In addition, Newfoundlanders and Labradorians work on average more hours per week 38.5, tied with Albertans, than any other Canadians and above the national average of 36.4 hours.)
Just as important is what happened to top income earners. By 2011, 40% of men earned over $1,000 per week, while just 21.7% of women did.
What this shows is without increases to the minimum wage, the wage gap between men and women would have continued to grow.
Newfoundland and Labrador Federation of Labour Minimum Wage Submission
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Men 16.0% Under $5.00 $5.00 - $5.99
14.0%
$6.00 - $6.99 12.0%
$7.00 - $7.99 $8.00 - $9.99
10.0%
$10.00 - $11.99 $12.00 - $13.99
8.0%
$14.00 - $15.99 $16.00 - $17.99
6.0%
$18.00 - $19.99 $20.00 - $21.99
4.0%
$22.00 - $23.99 $24.00 - $25.99
2.0%
$26.00 - $27.99 0.0%
$28.00 - $29.99 2000
2011
Women 30.0%
Under $5.00 $5.00 - $5.99
25.0%
$6.00 - $6.99 $7.00 - $7.99
20.0%
$8.00 - $9.99 $10.00 - $11.99
15.0%
$12.00 - $13.99 $14.00 - $15.99
10.0%
$16.00 - $17.99 $18.00 - $19.99
5.0%
$20.00 - $21.99 $22.00 - $23.99
0.0% 2000
2011
Newfoundland and Labrador Federation of Labour Minimum Wage Submission
$24.00 - $25.99
19
Today women in the sales and service occupations (still the lowest paid occupations in our economy) have an average hourly rate of pay of $12.63 ($7.43 in 2000), compared to $15.80 ($11.14) for men.
While women still make up the majority of workers in these occupations (35,100 women vs 21,000 men), their hourly wage growth increased 70% over the period between 20002011, while men (who had had a higher average hourly wage rate in these occupations to begin with) saw their average hourly wage increase by almost 42%. It should also be noted that employment in this low-paid sector increased by 10.2% between 2000-2011, refuting the claim that higher minimum wages result in a a loss of lower-skilled and lower-paid jobs.
The conclusion is clear: minimum wage increases have helped boost the fortunes of women workers in low-paid occupational categories and narrowed the pay gap between women and men in these occupations as well. Without those minimum wage increases, women would be sadly lagging even more. Increases in the minimum wage are thus strongly correlated with several policy goals of the provincial parliament: an increase in the labour force participation rate which lowers transfers and raises tax revenue, a decrease in the pay gap between men and women and a compression of the wage gap between low and middle income families.
This argument, implied or otherwise, from some in the business lobby that minimum wage earners or the low-paid represent a secondary source of family income and therefore this should somehow be taken into account when considering raising or not raising the minimum wage is sexist and discriminatory. It must be dismissed out of hand as rationale not to raise the wage.
Newfoundland and Labrador Federation of Labour Minimum Wage Submission
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What’s been happening to the economic pie? No one can dispute that workers’ share of the economic pie has been shrinking, in Canada and in Newfoundland and Labrador. This is despite gains made by Newfoundland and Labrador workers since 2005.
Workers in the economy are producing more, but their pay has not reflected that. For example, nationally, workers’ share of GDP declined from 56% in the late 1970s to about 51% (just prior to the financial recession of 2009). CAW economist Jim Stanford has pointed out that this shift of 5% of Canada’s GDP away from workers represents a cumulative loss of potential income of $80 billion per year or $5,000 per worker annually if it was shared. At the same time that workers’ share of the pie has been dropping, corporate share has been increasing and nowhere has that increase been more pronounced than in Newfoundland and Labrador. Measured as a share of GDP, corporate profits have reached their highest levels ever recorded in Canadian and Newfoundland and Labrador economic data.
Newfoundland and Labrador Federation of Labour Minimum Wage Submission
21
30%
In 2008 profits peaked at 37% of GDP in Newfoundland and Labrador
25%
1980s
1990s
2000s
20%
15%
In 2008 the national average was 14%
10%
5%
0% CA
NL
AB
SA
BC
Source: Statistics Canada. Table 384-0001 - Gross domestic product (GDP), income-based, provincial economic accounts, annual (dollars), CANSIM (database), Using E-STAT (distributor). http://estat.statcan.gc.ca/cgi-win/cnsmcgi.exe?Lang=E&EST-Fi=EStat/English/CII_1-eng.htm (accessed: September 20, 2011)
This chart shows the incredible share of our GDP going to corporate profits.
60%
1980s
1990s
2000s
50%
40%
30%
20%
10%
0% CA
NL
AB
SA
BC
Source: Statistics Canada. Table 384-0001 - Gross domestic product (GDP), income-based, provincial economic accounts, annual (dollars), CANSIM (database), Using E-STAT (distributor). http://estat.statcan.gc.ca/cgi-win/cnsmcgi.exe?Lang=E&EST-Fi=EStat/English/CII_1-eng.htm (accessed: September 20, 2011)
Newfoundland and Labrador Federation of Labour Minimum Wage Submission
22 These above charts highlight the dwindling share (despite some wage growth) of GDP that goes towards wages and salaries. Keep in mind that this includes wages and salaries for everyone from the minimum wage earner to company CEOs. In the 1980s and 1990s, Newfoundland and Labrador was much closer to the Canadian average in terms of how GDP was shared between corporations and workers or all employees.
GDP and Personal Income Per Capita NL Relative to Canada
Data Source: Wade Locke Derived from Stats Canada CANSIM V466668, V466983, V691786 and V691809 , V691801 and V691824
A comprehensive analysis on wages and incomes by CAW Economist and author Jim Stanford (http://www.caw.ca/assets/pdf/Wages_and_Income_Distribution_FINAL.pdf) details just how much minimum wages were eroded since the late 1970s. The real value of minimum wages declined sharply in the 1980s and 1990s. Later in the 2000s, minimum wages experienced a partial resurgence in Canada.
As mentioned, most provincial governments have significantly raised their minimum wages in recent years. But as Stanford points out this has merely served to recoup around half of the real purchasing power lost by minimum wages in the earlier two decades. However, he notes, we must also keep in mind that Canada’s output and productivity have grown substantially since the 1970s. Relative to the amount produced by each worker in an hour (which could be considered the total potential income available to the
Newfoundland and Labrador Federation of Labour Minimum Wage Submission
23 worker), the value of minimum wages has been eroded continuously since the late 1970s. Minimum wages as of 2009 (despite increases) still represented only 15 percent of the hourly output of the average Canadian worker (down from 25 percent in the late 1970s). “If minimum wages had grown since 1976 as fast as labour productivity has grown, average minimum wages today would be $16 per hour. Relative to the overall average level of wages, meanwhile, minimum wages currently represent about 40 percent of the labour-market-wide average. That’s down from around 50 percent in the late 1970s, but at least it’s higher than the low levels of the 1980s and 1990s.” – Economist Jim Stanford
Newfoundland and Labrador Federation of Labour Minimum Wage Submission
24
Case Against a Two-tiered Minimum Wage We find it ironic that a group of employers (the NL branch of the Canadian Restaurant and Foodservices Association who have publicly stated their challenge recruiting workers), would propose a wage freeze, a tip differential for servers (in other words a lower wage, even though we know tips or gratuities are not a wage (and not dependable) and vary from establishment to establishment) and a lower wage for new hires. Besides the inherent unfairness of these proposals, how in a tight labour market do they expect these proposals will help them compete? In addition, the two-tiering of wages sets the stage for possible abuses as was recently highly in a case brought to the Alberta Labour Relations Board by the UFCW on behalf of workers at a local restaurant. (Alberta has a liquor servers’ minimum wage that is lower than the general minimum wage and in this case the union presented evidence that even workers who did not serve, or rarely served, liquor were being paid the lower rate.) A two-tier minimum wage system is open to abuse by employers. As we understand, the vast majority of complaints to Labour Standards, they are made after employment ends. The provincial government has not invested resources in developing a Labour Standards inspectorate which would reverse the onus on often vulnerable employees to complain about their treatment to a government entity (risking their employment in the process) to a more proactive approach of ensuring the province’s labour standards are followed of inspection. The question as we see it should not be paying new hires less, but rather rewarding and retaining longer-term employees with higher compensation. In other words, minimum wage is the training wage. Newfoundland and Labrador should be applauded for not introducing a two-tiered minimum wage as some other provinces have done for those who serve liquor. Arguing for two-tiered wages because other provinces have it is not a viable economic claim. For example, restaurants and bars in this province compete with restaurants and bars in this
Newfoundland and Labrador Federation of Labour Minimum Wage Submission
25 province both for business and for labour, not with those in other provinces. They do not need two-tiered wages to be competitive, merely as a way to lower wages for everyone in this sector. Let’s point to some inherent inequities in this wage proposal. Gratuities are not wages. They cannot be depended on. You can’t pay bills on maybes. You can’t get a mortgage based on tips. In addition, the employer is depending on customers to subsidize their wage bill. In the case of British Columbia, the provincial government recently eliminated one of its tiered wages - the controversial training wage, although liquor servers are still paid less. The training wage was eliminated in May of this year when B.C. raised its minimum wage to $10.25.
Newfoundland and Labrador Federation of Labour Minimum Wage Submission
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Taxes and the low-paid Several employer organizations have proposed publicly that one way of helping the lowpaid (rather than actually pay them well) is to raise the Basic Personal Exemption by $4,000. Of course it should be pointed out that such a tax policy measure would be applied across the board. Not just the low paid would benefit. Indeed, according to information obtained from the Department of Finance, the bulk of the benefits of such a tax measure would not go to the low-income. And here’s why. The CEO of a large corporation would benefit from such a tax cut too. Our Federation inquired of the Department of Finance the cost of such a policy decision and who would benefit. It would cost the government $80 million annually, would benefit all income brackets, including higher income earners. Indeed, lower-paid workers would not benefit one bit from this proposal because their basic tax exemption is already considerably higher in Newfoundland and Labrador as a result of the low-income tax reduction (LITR). Almost 42,000 NL taxfilers benefitted from the LITR in 2010. Of them, 30,000 had earned employment income. The LITR cost the government $11.6 million in 2010, considerably less than the $80 million the proposal from employer organizations would cost. If the object of this proposal from several business organizations is to help lower-paid workers, then a better approach would be to target lower-paid workers, as the provincial government has already done with its low-income tax reduction. For example, if the LITR threshold was raised by $4,000 for both individuals and families, it would cost the provincial government $14.6 million in lost tax revenue, but clearly the benefit would only help the lowest paid. The real question here is in this growing and prosperous economy, with a growing demand for goods and services why should the provincial government subsidize business in this way?
Newfoundland and Labrador Federation of Labour Minimum Wage Submission
27 The provincial government has been quite sensitive to helping low-paid workers with its low income tax reduction plan. As noted proposals to raise basic personal income tax level will not benefit low-income, low-paid workers, as they already get a much better benefit through the low income tax reduction. Information about the LITR can be found on the Department of Finance’s website. http://www.fin.gov.nl.ca/fin/tax_programs_incentives/personal/lowincometaxreduction.ht ml
For the 2010 taxation year, the program eliminated provincial income tax for individuals with net income up to $16,022 or for families with net income up to $26,811. Partial tax reductions were received by individuals with net income up to $19,535 or for families with net income up to $32,086.
For the 2011 taxation year, the program will eliminate provincial income tax for individuals with net income up to $16,343 or for families with net income up to $27,348. Partial tax reductions will be received by individuals with net income up to $19,918 or for families with net income up to $32,723. The Low Income Tax Reduction income thresholds are increased annually utilizing the provincial Consumer Price Index.
If the provincial government was to consider a tax measure to help the lowest-paid in our province, the best course of action would be to build on what it is already doing and raise the low income tax reduction threshold.
Newfoundland and Labrador Federation of Labour Minimum Wage Submission
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Recommendations: Annual Indexation of the Minimum Wage Ken Battle, President of the Caledon Institute of Social Policy and leading social policy thinker and economist, noted in his April 2011 report “Restoring Minimum Wages in Canada,” that in recent years minimum wages have improved substantially in all provinces and territories. “But history shows us,” he notes, “that what goes up can later go down when it comes to minimum wage rates. To preserve the value of minimum wages, governments should arrive at a definition of what constitutes adequate rates and methods of indexing them.”
The NL Federation of Labour agrees. The Newfoundland and Labrador government has done much to restore the value of the minimum wage in our province and in doing so it has lifted up thousands of working Newfoundlanders and Labradorians, sending a signal that the someone working full-time should not be earning wages that put them below the poverty line.
Provincial and federal governments already apply indexation on many social benefits, including social assistance rates which have been indexed to inflation in the province of NL since 2006. In addition, the low income tax reduction is indexed. At the federal level OAS and GIS are indexed, as is CPP.
Indexation prevents the erosion of income as a result of increases in the cost of living.
The question our Federation would pose to this review panel now becomes, how we as a society maintain the value of the minimum wage, so that it does not erode in future as it has in the past two years when the wage remained at $10 hour and as it did over three decade of neglect.
When one considers the robust economic forecasts for the province over the coming years, it is incumbent on us to ensure workers do not get left behind. Indexing is a
Newfoundland and Labrador Federation of Labour Minimum Wage Submission
29 scientifically sound and a pragmatic policy-making tool that creates a predictable environment for business and workers.
Therefore we recommend that in order to catch up from two years of wage erosion in one of the hottest economies of the country, we propose that the minimum wage be immediately raised by 0.34 cents to cover the average CPI increase for NL in 2011 (including food and energy.)
In addition, we recommend that on January 1 of every year, the minimum wage be raised either according to the CPI (for the previous year) or the average wage for all workers in the province for the previous year.
Below we outline what this would mean using current realities.
Possible Approaches to Addressing Minimum Wage Increases Tying minimum wage to increases in the CPI
2010 $10.00
2011 $10.34
2012 ?
2013 ?
Tying minimum wage to basic CPI items (food, shelter, clothing, & transportation)
$10.00
$10.40
?
?
Tying minimum wage to increases in NL average hourly wage
$10.00
$10.66
$11.02
$11.40
Data Sources: Consumer price Index for NL - http://www.statcan.gc.ca/tables-tableaux/sumsom/l01/cst01/econ09b-eng.htm Percentage increases for the years 2012 and 2013 in the final option are based on national survey of public and private sector employers conducted by Hay Group – who estimated wage and salary growth in NL to average 3.4% for 2012 and 2013 http://www.haygroup.com/ca/Press/Details.aspx?ID=34497 Newfoundland and Labrador hourly wage data is derived from average hourly earnings for employees paid by the hour (SEPH - Survey of Employment, Payrolls and Hours), including overtime, annual (current dollars)
Newfoundland and Labrador Federation of Labour Minimum Wage Submission
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i (http://www.statcan.gc.ca/tables-tableaux/sum-som/l01/cst01/famil108a-eng.htm) ii (http://www.economics.gov.nl.ca/E2012/ProvincialEconomicOverview.pdf) iii The youth participation rate is a reflection of the number of 15-24 year-olds in the population, who are either employed or unemployed and actively looking for work in the reference period. iv The unemployment rate is the percentage in this age category that is looking for work and counted as being part of the labour force. Not everyone in the 15-24 years category is employed or looking for work. v Selected Economic Indicators, April 2012, Dept. Finance vi See the Labour force survey estimates (LFS), by sex and detailed age group, annual. vii For those members of the Commission that would like a more detailed account of the evolution of the debate on minimum wages within the economics profession they should avail themselves of the material here: http://www.epi.org/publication/bp178/ viii http://davidcard.berkeley.edu/papers/njmin-aer.pdf ix
http://www.epi.org/publication/raise-minimum-wage/
Newfoundland and Labrador Federation of Labour Minimum Wage Submission
