Living Wage Proposal Won't Work

3 Mar 2010

In several communities in Ontario, most notably Waterloo Region, there have been a number of attempts by anti-poverty groups to persuade that municipality to adopt (as an employer) a "Living Wage" of somewhere near $14.00 per hour for its employees and more critically for those employees who work for contractors that provide goods and services to the municipality. (In London estimates are as high as 600 to 700 such contracts)

Similar rumblings have taken place here in London and elsewhere calling for an even higher dollar per hour rate. Anti-poverty activists define "Living Wage" as the amount a single adult working full-time, full-year, needs to remain above the poverty line. Their rationale is that wages should be sufficient to provide a "Livable Income" and an equitable standard of living. A Living Wage provides funds to meet basic needs, to maintain a decent standard of living in the community, and to save for future needs and goals. It includes funds to support interaction, recreation and generally feeling connected to the community.

On the surface these appear to be laudable and modest goals. But does it (Living Wage) work? Aside from the obvious cost increases to London, or more accurately London�s taxpayers, (because after all it will be us who pays for the various increases in contracts for goods and services provided to the city) there are a growing number of potentially job-killing factors that should be addressed.

The concept of a Living Wage has unintended costs and consequences which are largely hidden or ignored by Living wage proponents. As a strategy to reduce poverty, it is woefully ineffective. It provides little or no value for the taxpayer's dollar. Its application is arbitrary, preferential and has little or no measurable return on investment. It benefits a select few only (who may or may not be in poverty) and has no positive impact on the economy.

There are better strategies to help the poor. As this Chamber has long advocated upgrading skills and lowering taxes for those in the lowest income brackets is far more effective for those individuals who find themselves in poverty and for the economy as a whole. Both of these strategies are in the purview of senior governments and both have had far better results for more people. If someone wants to truly escape poverty, the most effective way is by upgrading their skills and thus providing more value to their current or future employer.

Other investments that have proven more helpful include more investment in daycare spaces, eldercare, supported housing and transit subsidies.

Living Wage policies can actually hurt the poor. As employers in Ontario continue to face uncertainty in the marketplace, many businesses would respond to mandated wage increases by reducing employee hours, firing staff, switching them to part-time and/or putting off hiring. The ripple effect of Living Wage policies would mean that employers would have to increase all wage scales in order to maintain the relative pay differences among workers of different skill. And so, the very objective Living Wage sets out to attain (reducing the gap between rich and poor) is never achieved�.and in fact, it hurts low-skilled workers, students, immigrants and many who are trying to get back into the workforce.

Living Wage is a flawed anti-poverty strategy because it violates two fundamental laws of economy. One, when something costs more, people buy less of it and two; wages are inextricably linked to skills. Furthermore, the so-called benefits that would accrue to employers as articulated by advocates of Living Wage scream out for closer inspection. Any additional forced increases other than those already announced by the McGuinty Government, will only serve to damage the competitiveness of manufacturing, small business, hospitality/tourism and the retail sector and in the end, kill jobs.

Job creation in these sectors has been stifled enough by global economic conditions. They do not need another blow to their fragile recovery. Ontario already has a province-wide minimum wage policy. To add a higher minimum wage through a Living Wage only presents another barrier to job entry for many disadvantaged groups and individuals.

Setting income rates for the private sector or barring opportunities for municipal contracts to companies that don't or won't comply with a proposed Living Wage policy could never be in the best interest of London taxpayers. The marketplace and only the marketplace should determine wage rates, not municipal governments.

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