Minimum Wage June 2016 ISSUE The Government of Alberta will be increasing the minimum wage in fall 2016, continuing the expected increase to $15 per hour by 2018. BACKGROUND The Government of Alberta has made clear its commitment to raise Alberta s minimum wage from the 2015 rate of $10.20 per hour to $15 per hour by 2018. While it is important to ensure that all Albertans are paid a fair wage for their labour and that full-time work supports basic quality of life, such proposals should be subject to thorough and robust analysis and discussion rooted in fact. The reality is, such a change will have wide-ranging implications for families, businesses, employment and overall economic growth, and the nuances associated with those implications need to be discussed more openly before any further increases are made. We fully support the Province s objectives to reduce poverty and increase social welfare; however the minimum wage is a blunt and inefficient tool that forces small businesses to bear the cost of an issue that must be the responsibility of society atlarge. Minimum wage is not an effective way of addressing the core issues of poverty. More impactful policy alternatives, which target those who are in the most need, must be explored before moving towards a sharp wage increase. Albertans should work to build a strong and vibrant economy which provides a basic standard of living for all, but a robust evidence-based approach must be taken when setting broad policies which stand to harm the overall health of our economy. The Calgary and Edmonton Chambers of Commerce urge the government to wait on any further increases to the minimum wage until proper research has been conducted and its economic implications are better understood. MINIMUM WAGE PROFILE In exploring changes to the minimum wage, careful consideration must first be given to the current profile of Alberta s wage structure and labour market. The minimum wage profile in Alberta is currently unlike any other province, and understanding this is vital in the development of successful policy remedies. When compared to provincial counterparts, Alberta currently has the second highest minimum wage at $11.20 an hour. Furthermore, Alberta s unique low-tax environment means that the province s minimum wage earners have the highest take-home pay in 1
the country. 1 At $9.76 an hour after taxes, Albertans making minimum wage earn $0.64 per hour more than their prairie counterparts in Saskatchewan and Manitoba. A $15 per hour minimum wage would therefore be a significant increase to an already competitive wage rate. Alberta also has a unique breakdown of minimum wage earners. If the goal is to alleviate poverty and help the working poor, it is important to understand the specific demographics of those people currently earning the minimum wage. According to the government of Alberta, only 3.1% of Alberta s workforce earns the minimum wage. This is far below the 6.9% across Canada. This small portion of the population is overwhelmingly young (50.6% under the age of 24), less financially independent (44% live with parents, 14.9% with a working spouse), and work primarily in retail or the accommodation and food service sectors. The benefits of a minimum wage increase would therefore be concentrated in a small percentage of the population, one made up of a demographic apparently not in need of greater financial assistance. Alberta s low tax environment already ensures that after taxes, our minimum wage is currently the highest and most competitive in the country. Those whom minimum wage policies are meant to help (the working poor) already take home more of their earnings in Alberta than in any other province in Canada. Policies with concentrated gains, which do not address the core socioeconomic issues, do little to create a more prosperous economy for the benefit of all Albertans. Minimum Wage Rate BC NL SK NB NS PE QC MB AB ON Proposed $10.45 $10.50 $10.50 $10.65 $10.70 $10.75 $10.75 $11.00 $11.20 $11.25 $15.00 $8.00 $9.00 $10.00 $11.00 $12.00 $13.00 $14.00 $15.00 $16.00 1 The passage of Bill 2 did not affect the tax competitiveness of minimum wage earners, as the current 10% rate still applies to all who earn up to $125,000 per year. 2
NL PE NB NS MB SK BC ON QC AB Proposed After Tax Minimum Wage Rate $8.92 $8.92 $8.96 $8.98 $9.11 $9.12 $9.24 $9.57 $9.64 $9.76 $12.42 (approx.) $8.00 $9.00 $10.00 $11.00 $12.00 $13.00 $14.00 $15.00 $16.00 IMPLICATIONS OF A WAGE INCREASE A nearly 50% increase of the minimum wage will have far-reaching implications across the Alberta economy. Consumers, businesses, and those trying to navigate an already uncertain labour market will all feel the impact. Low oil prices have driven the Albertan economy into an unprecedented period of uncertainty, and a sharp government-mandated increase to key input costs stands to only compound these issues. FALL IN CONSUMER DEMAND Input cost increases brought on by a higher minimum wage will be partially borne by consumers in the form of price inflation. As supply costs for businesses rise, so will prices of the goods and services they provide, leading to higher prices across the province. Not only will this reduce the purchasing power of the province s consumers, but the downward pressure on demand that is created will further hurt the Albertan economy as businesses see fewer sales due to more conservative consumption pattern. With retail sales up a meagre 0.7% from this time last year, the current economic downturn is keeping consumption depressed; higher prices will only compound this problem. On balance, the economic benefits attributed to the increased purchasing power of low-income earners with a minimum wage increase will be negated by a decline in consumption by those at the middle and higher end of the income spectrum, who will not see a wage increase. A higher minimum wage will make Alberta an even more expensive place to live, hurting middle income families and vulnerable communities, and adversely impacting an already fragile economy. BUSINESS UNCERTAINTY Due to their limited flexibility and inability to absorb substantial increases to labour costs, small businesses and non-profits are especially vulnerable to changes in the minimum wage. As primarily labour-intensive enterprises, they are the least able to survive these changes and they will bear the brunt of these additional costs. 3
Non-profits particularly lack the flexibility to comply with a rapid increase to the minimum wage. As much of their funding is often tied to grants or donations for specific uses, their ability to shift revenue in order to balance increased costs is severely limited. Therefore non-profits, including those who work to alleviate poverty and provide vital community supports, will likely be forced to make deep cuts to their services and activities in order to comply with the higher minimum wage. WAGE RIPPLE EFFECT It is important to be mindful that an increase in the minimum wage has significant repercussions up the wage ladder. It not only means higher pay for those currently making $11.20 per hour, it also requires raises for those making anything below $15 per hour, as well as those employees who make just above the new minimum and are currently paid a premium for their level of responsibility. This ripple effect has been shown to increase a firm s wage bill by nearly two-fold. With labour being the main input for many small businesses, coupled with their inability to offset these changes with increased capital investment, a $15 per hour minimum wage has the potential to have significant adverse effects. LABOUR MARKET INSTABILITY Increased labour costs will create a state of job insecurity. As firms reassess their labour models and attempt to minimize wages, low-skilled and less educated workers are most likely be laid off hurting some of the vulnerable workers these policies are meant to help. Therefore it is important that a balance is struck between providing low-skilled workers with higher incomes and endangering the jobs they already have. In the face of rising labour costs, firms may make a conscious shift toward automation in an attempt to minimize their wage payments. Previously uneconomic technologies now become a reasonable alternative to wage-earning workers. As capital is substituted for some but not all labour, low-skilled workers see greater displacement and hardship. While an increased minimum wage may see a rise in long-term employee retention, it will also have a negative impact for seasonal and youth workers, as well as those looking to enter the labour market or gain new skills. The scarcity created by high wages disincentivizes the hiring of new employees, due to the cost intensive and risky process of training a new worker especially one who may only be searching for short-term employment. Workers could see a significant decrease in their benefits at a higher minimum wage as well. Perks and benefits not captured in the wage-rate will become less prevalent as employers attempt to cut costs, especially on workers. Blanket wage increases will discourage businesses from offering other benefits, such as health insurance, which may be significantly cheaper when provided by an employer than when purchased as an individual. 4
RECOMMENDATIONS In order to mitigate the economic costs of a minimum wage increase, the Calgary and Edmonton Chambers of Commerce recommend that the Government of Alberta: 1. Conduct a comprehensive and transparent cost-benefit analysis of a $15 dollar minimum wage; 2. Examine the use of novel, and targeted, social programs to tackle poverty in the province; 3. Tie future minimum wage increases to economic growth indicators Consider indexing minimum wage to inflation only once the full effects of the wage increases are understood within the Alberta context; 4. Introduce prolonged and flexible phase-in periods for non-profits and small businesses, where payrolls represent a substantial portion of operating costs; 5. Explore a minimum compensation model in order to account for employee benefits not entirely captured in the wage rate, such as tax breaks for those businesses providing benefits for post-secondary education and training, health insurance, and matching RRSP programs to name a few; and, 6. Establish a training period exemption from the minimum wage to help reduce the risk of hiring and training of new employees, especially in seasonal positions. 5