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Raising the minimum wage to reduce poverty

Ken Battle of the Caledon Institute has written a very useful report: Restoring Minimum Wages in Canada. It contains a wealth of data on minimum wage trends by province since 1965 and their changing relationship to average wages and to the low income line.

Battle shows that, in almost all provinces and territories, with the notable exception of B.C., minimum wages rose from the early years of the past decade, restoring a lot of lost ground. He suggests that further progress will require general agreement on a minimum wage standard (e.g. 50% of average earnings), and indexing of minimum wages (to prices or to average wages) once they reach that level.

As the summary reports: "The national average minimum wage rose from $6.54 an hour in 1965 (in constant 2010 dollars) to a peak of $9.92 in 1976, then fell to $7.01 in 1986. But it increased again to reach $9.16 in 2010 -- just 76 cents below the mid-1970s high.

The recent increase in minimum wages across Canada is due in part to the creation of poverty reduction strategies, which have focused attention on minimum wages. Starting in Quebec and then Newfoundland and Labrador, poverty reduction strategies -- comprehensive and far-reaching plans to reduce, prevent and eliminate poverty -- have been launched by all provinces and territories except Saskatchewan, Alberta and British Columbia. While the minimum wage is only one tool among many required to build an effective poverty reduction strategy, it is crucial to the task."

The national average minimum wage is now about 40% of average hourly earnings, still low compared to the OECD average and well below the high of about 60% in France.

It is interesting to note that, measured as a share of the average wage in the same province, minimum wages are much more generous in some lower income provinces (P.E.I. is the most generous, followed by Nova Scotia, Quebec and Newfoundland) and most stingy in two relatively high wage provinces, Alberta and B.C.

The study does not look closely at the alleged negative impacts of higher minimum wages on employment. However, it is notable that the significant upward adjustment of minimum wages from about 2000 took place during a period when the national unemployment rate fell from about 7% to just 6%.

The study also shows that the minimum wage now brings the incomes of most full-time single workers to above the poverty line for a single person, measured by the LICO After Tax line. While this is a reasonable way to look at the adequacy of minimum wages, advocates of living wages will note that LICO lines are very low in relation to the real cost of living in some major urban centres where rents are high.

I would add to Battle's reference to poverty reduction strategies that campaigns for minimum wage increases have often joined together labour and anti-poverty activists. The argument that persons working full-time should not be living in poverty has been very politically compelling.

This article was first posted on The Progressive Economics Forum.

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