I’ve been asked a few times what I think of British Columbia’s recent minimum wage hike. First, we need some context.
The Fair Wages Commission was established by the BC government in October 2017 in order to make recommendations regarding the minimum wage, and to address discrepancies between the minimum wage and living wage. The BC Ministry of Labour has noted that the majority of people working at or near the minimum wage are adults working full-time for medium- or large-sized companies, and working 40 hours per week at the then-current hourly wage of $11.35 does not meet the cost of living in BC. The following infographic uses average values for BC:
I don’t know where in BC you can rent a place for $1000 these days, unless it’s an absolute dump or you’re just renting a room with roommates. Certainly not in Vancouver or Victoria – not without a very long commute anyway, but that’s a different issue outside the scope of this article.
It’s important that we understand who is on the commission making these recommendations. The (admittedly left-leaning) government didn’t stack the commission with ideologues, even though they could have. All three members are economists. One is an expert in economic policy. One is a union-leader, representing the interests of the labour force. One is vice president of the Business Council of BC, representing the interests of business and industry. These aren’t your relatives having an argument online or at the dinner table; they’re economic experts who understand the impact of wages on the economy and living standards on a deep level. All sides have been considered, and have come to an agreement about the necessary course of action.
The Commission recommended the following roll-out, which is being implemented by the Ministry of Labour:
June 1, 2018: $12.65 ($1.30 increase)
June 1, 2019: $13.85 ($1.20 increase)
June 1, 2020: $14.60 ($0.75 increase)
June 1, 2021: $15.20 ($0.60 increase)
Many have praised the new minimum wage as the highest we’ve ever had. Some have complained that the new minimum wage is too high. Both sides are wrong.
The minimum wage looks nice on paper, but we must consider it in relation to what it can actually buy. Remember those stories your grandparents told you, about how back in their day they could buy a candy bar for a nickel? The cost of housing, transportation, food, telecommunications, education, and so on increases every year irrespective of changes in wages, a phenomenon we call inflation. If you don’t get a raise that is consistent with inflation every year, the money you get can buy you less every year – the equivalent of a pay decrease. The increase in the price of some things (e.g. real estate or education) typically far exceeds the standard rate of inflation. Minimum wage in BC is not usually adjusted every year (the current changes are atypical) – instead, past governments have given the minimum wage a small boost over a year or two, and let the wage fall relative to inflation for some period. From 1980 to 1987, and again from 2001 to 2010, the comparative value of the minimum wage had been allowed to fall freely. These days, some provinces have indexed the minimum wage so that it is adjusted yearly based on a systematic formula (e.g. according to the Consumer Price Index) to depoliticize the process.
I wanted to learn a bit more about the history of the minimum wage in BC, so I went digging through the BC Archives. Minimum wage was originally implemented in 1918 to protect working women and children from predatory employers. Women and children made up a small proportion of the labour force, and men’s wages were typically much higher than the minimum paid to women. This early minimum wage is actually relatively stable in its purchasing power – it was dependent on the industry the woman or child worked in, and the minimum wage for each industry was reconsidered and adjusted every year. These wages and adjustments can be found in the Annual Reports of the Department of Labour for each year. In the 1960s, more and more women were participating in the labour force and the gap in men’s and women’s wages began to shrink considerably. In turn, a higher minimum wage was implemented to protect men’s wages from stagnation. If we take the lowest wage for any year, one of the largest jumps in BC’s minimum wage is from $0.42 in 1964 to $1.00 in 1965, when a $1.00 hourly wage was implemented for all workers.
If we graph the minimum wage from 1918 to 2018 in current dollars (meaning unadjusted dollars for the year the wage is received), we get a constant increase in the minimum wage. If we probe no further, it looks like low-wage workers are getting a fantastic deal. This is, unfortunately, how a lot of people think about money – as an immutable number, rather than in terms of value and exchange. This serves well enough in everyday life, but this view has to be abandoned when we look at the big picture.
If we graph the minimum wage from 1918 to 2018 in constant dollars for 2018 (meaning we adjust the wage for inflation, giving its value in 2018 dollars), we get a very different picture. The value of the minimum wage actually peaked in the mid-1970s, and has never reached a comparable value since. BC’s 2018 minimum wage increase has come closest to the 1974 record of $13.12 (in 2018 dollars). Future increases may surpass the 1974 wage, but this remains to be seen (it will depend on the rate of inflation for this and future years).
All this means is that a Gen-Z born in 2000 entering the workforce at age 18 can expect to receive, at minimum, a similar wage as a Baby Boomer born in 1956 in the same situation. That is to say, this is the first time the minimum wage has been at a similar level to that which people a few generations ago enjoyed. It would be hypocritical for someone who enjoyed high wages to deny them to later generations without a very strong economic impetus for doing so. I should note, concern over the small business impacts of minimum wage are not a strong impetus; these concerns have been expressed since the introduction of minimum wage, but Canada’s economy has continued to grow and wages have not been implicated in any economic disaster scenarios.
A lot of the ‘popular criticism’ of minimum wage stems from the undervaluing of labour and a misunderstanding of economics. Some people don’t think some kinds of work are worth $15 per hour, especially when they think back on their own $3 or $6 wage years ago, perhaps even for the same job. These people are thinking of money as an integer, like a physical thing that can be accumulated, rather than its actual value in exchange. Additionally, if we say someone doesn’t deserve to earn $15 per hour, but $15 per hour full-time is the break-even point for cost of living, what we’re really saying is that people in low-wage jobs deserve to live in poverty – even if they’re honest, hard-working people. Many of these low-wage labour roles are necessary, but are only sustainable so long as they provide a living wage. Canada is one of the world’s top economies, and we should be able to keep wages consistent with the cost of living at the very least.
I’d be interested in reexamining the minimum wage in future as the rate increases and inflation data for future years becomes available.
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