Living wages send a message of value to employees – and although not free, they are not an overwhelming expense.
The B.C. Federation of Labour is campaigning to increase the provincial minimum wage from $8 to $10 an hour, and in April New Westminster became the first municipality in Canada to pass a living wage bylaw: all employees of the city and its contractors must be paid a wage based on a calculation of what a person in a two-earner, two-child household needs to live at a basic level. When the policy passed, the inflation-indexed wage was $16.74 an hour – or about half what two earners would need to service the mortgage of a median- price house in Metro Vancouver.
In recent years, living wages became popular in U.S. cities where hot housing markets ran up against the declining real value of the minimum wage, and employers couldn’t find, let alone hold on to, good workers. Many argue that B.C. is now in a similar situation, and reviewing the arguments for a higher minimum wage can lead to a better understanding of the economic case for living wages.
What's in a wage?
Wage rates are prices, and prices convey information that allows us to allocate resources. If a business pays more than its competitors for an input, it might become uncompetitive. If it pays less, it might not be able to deliver a quality product or service. Either way, the business might fail. But when it comes to the wage rate, the information conveyed is neither that simple nor that precise. There are any number of possible combinations of capital, technology and workers with different skills to achieve a given task. A floor that can be cleaned by one good driver on a modified Zamboni might take a whole crew working on its hands and knees. So instead of thinking of the wage rate as a single optimal price, it’s better to think of a wage range within which we can make and communicate our strategic choices.
Viewed this way, the minimum wage conveys the message that there is some level of earnings that is too low – that we don’t want to live in a society where working people live in poverty. The minimum wage also exerts a persistent reminder to employers to manage their business without depending on a never-ending supply of cheap workers.
Given Canada’s worker shortages and long-term demographic trends, raising minimum wages is generally good policy, though in a competitive world there is a level of wages that can cause some jobs to migrate to lower-wage destinations. However, with the lowest minimum wage in Canada, B.C. is nowhere close to that level and besides, access to skills, markets and resources are more influential than wages in most firms’ location decisions. Instead, raising the minimum wage would have a modest stimulatory effect since the workers who benefit are likely to spend all of the increase. More importantly, when the current economic slowdown ends, a higher minimum wage would send the message to B.C. workers that it might be better to stay here than chase jobs in the oil patch.
The value in a living wage
A living wage sends a different message. For employees, it’s that they are valued, that their home life is important and that the employer is willing to invest in making them more productive. This has positive effects that offset some of the higher wage costs: research has shown that turnover and absenteeism declined following implementation of living wage policies in U.S. cities. For customers, the message is that this is a stable, well-qualified workforce that can afford to live locally. This is an important message for someone contracting for home care or security services, for example. It also gives the consumer an incentive to learn more about their contractors.
These benefits of living wages are not free, but neither are they expensive. New Westminster’s living wage policy is expected to increase annual contract costs by no more than $150,000, about one-tenth of one per cent of city revenue. Even in a recession, that’s a small price to pay to communicate the real value of work.