Last month, Calgary took steps to become the first city in Canada to adopt the trendy American social policy of a living wage. Its impact on fighting poverty will be precisely zero. But that doesn’t mean we shouldn’t all be worried.
The living wage is a favoured policy of local anti-poverty activists in the United States, where approximately 140 large urban centres, including Boston, Detroit, Chicago, Los Angeles and New York City have adopted it.
Living wage polices come in many shapes and sizes. All establish a new municipal minimum wage rate that applies to only some employees in a city or region. Calgary’s plan calls for a rate of $13.25 per hour. The provincial minimum wage will be $8.80 next month.
It is also necessary to decide which lucky workers qualify for this super-minimum wage. Calgary aldermen were presented with three options: apply the living wage to full-time employees of the city, all employees including casual and summer staff, or all employees plus workers at businesses holding contracts with the city. This final option would cover private sector employees including janitors and security guards.
Advocates claim living wages fight poverty, raise the self-esteem of the working poor, make businesses more efficient and establish an ethical benchmark for society – all at an “insignificant” cost to taxpayers. But evidence from the US reveals a wide variety of hidden costs.
If taxpayers aren’t paying the freight for higher wages, someone else must. In Boston, 40 percent of all businesses contracting with the city earned lower profits due to the living wage. In Detroit, the extra costs to business were, on average, 2.5 percent of total contract values. This is definitely not insignificant, especially in a recession.
Calgary’s living wage advocates claim businesses paying living wages will benefit from lower absenteeism and higher productivity, compensating them for lower profits. But businesses have always been free to raise their wages, regardless of city policy. The reason they haven’t is that these alleged benefits do not cover the extra costs of the higher wages.
Setting higher wage rates for low-skilled jobs can also distort the labour market in undesirable ways by discouraging education and training. And US experience shows that raising wages for low-skilled city jobs causes other employees higher up the ladder to demand pay increases, leading to a cascade effect of wage inflation and a bigger wage bill for taxpayers.
Finally, by making private sector contractors more expensive a living wage can lead to greater union control over municipal services and higher taxes over time. This comes as no surprise, as unions are big supporters of a living wage.
For all these costs, the benefits of a living wage are surprisingly hard to find. Most living wage laws reach no more than one percent of the working population. And many of those workers were not in poverty to begin with. The same holds true for Calgary.
Under the first option considered by the city, not a single worker would see his or her wages rise. That’s because all full-time employees currently make more than $13.25 an hour.
Option two would affect 500 part-time summer workers in the recreation department. Most of them are babysitters and concession stand attendants. About half are under the age of 18 and live at home. Not the most obvious target for an anti-poverty program.
Finally, the third option would cover approximately 1,400 employees at businesses contracting with the city. But of this group, only 170 workers actually make less than $13.25.
So what did the city fathers choose? The committee recommended the first and most pointless option for council approval in April. Calgary is now on track to establish a new minimum wage that is below the rate paid to all its full-time employees. So why bother?
There are two possibilities. In its rush to be the first Canadian city to adopt a living wage, Calgary has purposely chosen a policy devoid of practical impact. This suggests the living wage movement is simply a meaningless affectation. If so, it should be abandoned as a waste of time and an insult to the genuinely poor.
The only other possible answer is more devious in nature. Perhaps the plan is to start small and slowly expand the size and scope of Calgary’s living wage over time.
Advocates inside and out of city hall may have judged their chances for success in a recessionary climate at slim to none. So they settled for a small symbolic beachhead in hopes of mounting a more aggressive assault on the Calgary labour market at a later time.
The benefits of Calgary’s living wage proposal range from zero to miniscule, while the long-term costs of establishing bureaucratic control over local wage rates may be incalculable.