Submission to Ontario s Minimum Wage Advisory Panel Mississauga Consultation September 19, 2013
1 The Ontario Federation of Labour welcomes the opportunity to make this submission to the Minimum Wage Advisory Panel, which has been tasked with examining Ontario s approach to setting the minimum wage. In the lead up to the 2013 Ontario provincial budget, the OFL coordinated a province- wide consultation that culminated in the release of a People s Budget. It included a set of recommendations about how to make Ontario a more fair and equitable province. One key recommendation was to: Raise the minimum wage to $14 per hour, which is 10 percent above the poverty line based on a 35- hour week, and de- politicize the minimum wage by implementing a formula that would determine regular future increases. Fairness is sometimes as simple as being properly compensated for the work you do, but for a lot of Ontarians having a job does not necessarily provide adequate support for themselves and their families. That is why we continue to stand by this recommendation. Minimum wage legislation is an important social policy because it establishes a wage floor. Everyone deserves the opportunity to earn a decent wage, whether it s a single mother raising a family or a student saving for college. An adequate minimum wage can help to ensure that workers with little bargaining power in the labour market are paid a livable wage. The minimum wage is about lifting working people out of poverty, but it s also about fairness and the value of work. Even for individuals not living below the poverty line, a decent wage can provide opportunities and allow them to contribute more to their families and local economies. Establishing a higher wage floor can also help to address inequality. The earnings of Ontarians have become polarized. Those at the top are earning more, while those in the middle and at the bottom are facing stagnating wages. Putting more income into the hands of those earning the least can help address this inequality. Establishing an adequate minimum wage is one way to do this. The prevalence of precarious work is also on the rise. In Ontario, 33 percent of workers are estimated to be working in precarious employment. i In the Greater Toronto and Hamilton Area, precarious work has increased by 50 percent over the last 20 years and barely half of those working in the region today are in permanent, full- time positions that provide benefits and employment security. ii Increasing the minimum wage cannot address all impacts of precarity, but it is a very effective instrument for addressing one key aspect of precarious work low wages.
2 Since 2008 and throughout the recession that followed, Ontario is one of the few provinces that has failed to continue increasing the minimum wage. Ontario s minimum wage has been frozen at $10.25 per hour since 2010, while the cost of living has continued to increase. The all- items Consumer Price Index (CPI) in Ontario increased by 5.5 percent between July 2010 and July 2013. iii This means that minimum wage earners in Ontario have watched their purchasing power erode over the past three years. Minimum wage Low Income Measure iv % below LIM 2010 $10.25 per hour $18, 655 per year* $21,772 per year 14% 2013 $10.25 per hour $18, 655 per year* $23,105 per year** 19% *Based on a 35- hour work week, which is below the average work week. **Based on an estimated two percent increase in CPI each year since 2010. The actual increase in the Ontario all items CPI was 3.1 percent in 2011, 1.4 percent in 2012 and is not available for 2013. In 2010, the income of minimum wage earners in a one- person household working a 35- hour week was 14 percent below the poverty line. In 2013, that income fell to 19 percent below the poverty line. This is unacceptable. Working people should not have to live in poverty. While the minimum wage has not kept up with the cost of living, the number of Ontarians earning minimum wage continues to climb. In 2012, approximately one in 10 workers in Ontario were paid minimum wage. Throughout the mid 2000s, the rate was fewer than one in 20 workers. In a very short period of time, the share of minimum wage earners in the province has more than doubled. v Opportunity and Fairness for Young and Vulnerable Workers Some will dismiss the importance of increasing the minimum wage, assuming that the majority are young workers who can rely on their parents for support. But not all minimum wage workers are young. Provincially, 27 percent of minimum wage workers were 35 years of age and older in 2012, up from 17 percent in 2004. vi Furthermore, even within the 73 percent of minimum wage earners who are under the age of 35, many still need support. In fact, they may need a boost now more than ever before. Young people today are more educated, but for many this means facing high levels of student debt. In Ontario, the average student debt after a four- year degree is $37,000. vii In addition, more young people are living at home longer. In 2011, 42.3
3 percent of young adults aged 20 to 29 in Canada lived with their parents, much higher than 32.1 percent in 1991 and 26.9 percent in 1981. viii In Ontario, this number is even higher: 50.6 percent of people aged 20 to 29 were living at home in 2011. ix A higher minimum wage could set young Ontarians on a path towards independence and self- sufficiency and help them be able to leave home and pay back education- related debts. Women and newcomers are also disproportionately represented among minimum wage earners. In 2009, women represented just over 60 percent of minimum- wage workers, although they made up one- half of employees. The overrepresentation of women in this category of workers is observable among all age groups, but more significantly for women 25 years of age and over, whose rate was twice as high as that of men the same age. x Research also shows that newcomers are more likely to earn close to minimum wage and less likely to have high- paying jobs. xi In a province that believes in equality of opportunity and fairness, raising the minimum wage and putting more income in the hands of groups who are overrepresented among vulnerable workers makes good sense. Economic Impact Some people cite the potential impact on employment as a reason not to increase the minimum wage. Yet in other provinces no evidence has been found that minimum wage increases have cost jobs. xii Overall, there is no consensus in the literature about the impact of raising the minimum wage on employment, which suggests that if a relationship does exist, it is weak. xiii In fact, within the current economic context, raising the minimum wage is likely to have a positive overall economic impact. Increasing the purchasing power of low- income earners means that they have more money to spend in their local economies. This is particularly important in times when the economy is growing slowly, as it has in recent years. In the 2013 Ontario Budget, the provincial government projected that household spending would drive 59 percent of economic growth in Ontario in the period from 2013 to 2016. xiv Role of Indexation When social programs are not indexed to the cost of living, their value erodes over time and those relying on the programs lose out. Furthermore, decreasing the value of social programs in this manner is not transparent to the public, who might not fully understand the impact of inflation on their purchasing power.
4 The same holds true with the minimum wage. Indexing to ensure that it keeps up with changes to the cost of living simply makes good sense. The indexation of social programs to the cost of living is particularly important for low- income earners who are disproportionately impacted by inflation. Low- income households spend a higher proportion of income on necessities, such as food, shelter, transportation and energy, which tend to have higher rates of inflation. For example, in Ontario between 2008 and 2012, the all- items CPI increased at an average rate of 1.9 percent, while the CPI for food, shelter and transportation increased by an average of 2.5 percent. The CPI for food alone increased by an average of 3.3 percent and the CPI for food and energy rose by an average of 3.9 percent. For low- income households, this means that while indexing to the cost of living is crucial, indexing social programs to the all- items CPI may not be sufficient. The Need for an Adequate Minimum Wage While indexation is necessary, it only works when starting from an adequate minimum wage. As illustrated in the Caledon Institute s 2011 research, if the Ontario minimum wage had been adjusted annually for the cost of living based on the 1965 minimum wage, it would have only reached $6.90 per hour in 2010, much lower than the actual minimum wage of $10.06, which had been subject to ad hoc increases over the years. xv Similarly, if today s minimum wage was indexed from the current amount of $10.25 per hour, then minimum wage earners could become sentenced to working poverty. Thus, the most important component of discussions about setting future increases is establishing an adequate starting point. Minimum wage Equal to 2013 LIM $12.70 per hour 10% above 2013 LIM $14.00 per hour The most straightforward way to establish an adequate minimum wage is to set it above the poverty line. This is based on the simple idea that every full- time worker should be able to cover the basic cost of living and reflects a society that values the contribution of every worker to its economy. In Nova Scotia, the provincial government accepted the recommendation of the Minimum Wage Review Committee to benchmark the minimum wage at the Low Income Cut Off (LICO). The LICO, however, is no longer accepted as the best measure of
5 low income in Ontario and it has not been updated since 1992. Instead, the Low Income Measure (LIM) is now the accepted measure of poverty. It makes sense to benchmark the minimum wage to the LIM in Ontario before indexing it. That is why the province- wide campaign to raise the minimum wage has suggested an immediate increase to $14 per hour. This would establish a starting minimum wage rate that is 10 percent above the Low Income Measure (LIM) for a one- person household. From there, if the minimum wage was indexed to the cost of living it would help to ensure minimum wage earners can continue to live above the poverty line into the future. Indexation should also be accompanied by an annual commission that would be tasked with assessing the challenges facing low- income earners and evaluating how the minimum wage is stacking up against the poverty line each year. This would provide a forum for discussing whether indexation is adequately working. It would also help to facilitate a much- needed ongoing dialogue about the challenges facing low- income earners and could become one component of a broader conversation about poverty reduction in Ontario. This commission should be a tri- partite body made up of representation from labour, business and government, as well as youth and community members to ensure that the perspective of minimum wage earners themselves are reflected. Conclusion Most research shows that raising the minimum wage has little to no impact on broader employment trends. While in the current economic context, it is more likely to have a positive economic impact because it will help drive consumer spending. It is important not to exaggerate the impact of raising the minimum wage on areas that it is not meant to address, like employment. Instead, focus should be placed on areas where it is designed to have a significant impact, such as wage determination and income distribution. Our key message today is that an immediate increase in the minimum wage is necessary before the minimum wage is indexed. Otherwise, working people are at risk of being indexed to poverty. An adequate minimum wage will increase the wage floor and put more money in the hands of low- income earners in Ontario. By benchmarking the minimum wage above
6 the poverty line and indexing it to the cost of living, our province has an opportunity to take a big step towards eliminating working poverty in Ontario. BSW/ss/cope343 i Vulnerable Workers and Precarious Work, Law Commission of Ontario, December 2012. ii It s More then Poverty: Employment Precarity and Household Well- being, Poverty and Employment Precarity in Southern Ontario, February 2013. iii Statistics Canada, CANSIM Table 326-0020. iv Statistics Canada, Low Income Lines, 2011-2012, Table 3. June 2013. v Armine Yalnizyan, Boost the Minimum Wage, Boost the Economy, from the bottom up Behind the Numbers, Canadian Centre for Policy Alternatives, February 27, 2013. vi ibid. vii The Future of Ontario s Post- Secondary Education System, Canadian Federation of Students- Ontario, September 2012. viii Statistics Canada, Living Arrangements of Young Adults aged 20 to 29, September 19, 2012. ix Statistics Canada. Families and Households Highlight Tables, 2011 Census. September 19, 2012. x Statistics Canada, Inside the Labour Market Downturn, The Daily, February 23, 2011. xi Jason Gilmore. Statistics Canada, The 2008 Canadian Immigrant Labour Market: Analysis of Quality of Employment, November 23, 2009. xii Iglika Ivanova, Myths and Facts about the Minimum Wage in BC, Canadian Centre for Policy Alternatives. February 2011. xiii For discussion see John Schmitt. Why Does the Minimum Wage Have No Discernable Effect on Employment? Centre for Economic and Policy Research. xiv 2013 Ontario Budget, page 181. xv Ken Battle, Restoring Minimum Wages in Canada, Caledon Institute, April 2011.