How a serious hike in the minimum wage would revive prosperity for all citizens.
Storms of controversy have been generated by the provincial government’s decision to boost wages for every working Kelowna resident by 20 cents an hour.
Originally published, March 23, TheTyee.ca
Victoria also pledged that each person living in that Okanagan city would see his or her annual wages increased automatically in the future to keep up with inflation.
As expected, local political leaders and business people from across the rest of the province have loudly complained that their communities were ignored and overlooked by Victoria’s plan to spark economic growth in the Okanagan city alone. Why should just Kelowna gain such an advantage, they demand to know.
One northern B.C. mayor who requested anonymity put it like this:
“Kelowna’s population is about 120,000,” she said. “If all those people put in an average of eight hours a day, five days a week and 50 weeks a year, each works about 2,000 hours annually.”
Quickly doing the math, she explained that a 20-cents per hour pay hike would give each Kelowna resident an extra $400 to spend each and every year.
“If all 120,000 Kelowna residents get a pay hike of $400,” the mayor said, “the total spending power in the local economy is lifted by $48 million.”
She then came to the nub of her argument: “Think of all the beneficiaries of that increase in wages,” the mayor said. “Everyone with a retail store in Kelowna will see increased sales. Shopkeepers are going to enjoy a boom in spending. The entire local economy will benefit. People will flock to Kelowna to work and invest.
“We want the same!”
That’s a make-believe scenario, of course. But it’s meant to make a point about what really happened on March 12, and the huge opportunity missed. Jobs Minister Shirley Bond announced the province’s minimum wage will be boosted by 20 cents in September 2015, and indexed next year to annual increases in the consumer price index.
It applies to all minimum-wage workers across the province, not just to Kelowna residents.
Yet, the number of low-income workers affected by the 20-cent increase across British Columbia — approximately 120,000 — is nearly-identical to the population of the Okanagan’s biggest city.
Many minimum-wage workers also have part-time jobs, too, so the total economic boost in the first year of the pay hike will be less than $48 million.
And that further reduces the overall economic benefit of the minimum-wage hike, which will be dissipated across the entire province rather than in a single municipality.
This year, British Columbia’s economy — current-dollar gross domestic product as estimated by the Ministry of Finance — will be $247.9 billion.
Looked at in this light, the impact of government’s announcement of the minimum-wage increase will be almost negligible — while modestly helpful for the direct beneficiaries (those who work for the minimum wage), it is but a mere pimple for the province as a whole.
Reversing BC’s race to wage bottom
There are many ways to look at minimum wages, but let us consider two: the micro effect on those who receive the current minimum of $10.25 an hour; and the macro effect on B.C.’s economy.
In the first instance, someone who earns the minimum and works full time — again, eight hours a day, five days a week for 50 weeks a year — now has an annual income of $20,500.
Once the modest 20-cents an hour hike comes into effect, that annual income will rise to about $20,900.
The beneficiary of that government policy decision will have, on average, an additional $33 or so to spend each and every month.
And, again, that’s for those lucky individuals who have full-time employment. Most minimum-wage workers do not.
Now think of the macro impact. Let’s begin by looking at British Columbia’s woeful economic performance in recent decades.
Take average weekly wages.
In the 1980s, weekly wages in British Columbia were the highest in Canada. Today, we’re down to fifth-place.
At the beginning of the century, in 2001, the average weekly wage across Canada was $656.59. The comparable number in B.C. was nearly identical (but slightly higher) at $656.88.
By 2013, the Canadian average for weekly wages had increased to $910.74 — but in B.C. we had fallen well behind at just $873.14.
It seems hard to believe: the average B.C. worker today earns less on a weekly basis than workers elsewhere across the country.
And think about this: in 1981, workers’ wages and salaries made up 51.2 per cent of British Columbia’s nominal gross domestic product.
Two decades later, in 2001, that number was down to 45.1 per cent.
And in 2013, after a dozen years of BC Liberal government, the comparable figure had slipped even further to 43.1 per cent.
Very simply, workers’ wages in B.C. have become an increasingly smaller piece of the provincial economic pie.
The sad reality is that B.C. — in comparison to other Canadian provinces — has become a low-wage jurisdiction.
A hit to every cash register
What is the impact of our wage collapse?
Take retail sales as a proportion of the provincial economy.
In 2001, retail sales were 30 per cent of B.C.’s nominal gross domestic product. Last year, the comparable figure was just 27.7 per cent.
Now, that may not seem like a lot, but go back to the fact that our GDP this year is forecast to come in at $247.9 billion.
A loss of 2.3 per cent in retail sales equals reduced spending of $5.7 billion — in one year alone!
Where once B.C. was renowned for high wages and plentiful jobs, and attracting workers from across Canada, now we have below-middling incomes and entice workers only from low-wage countries across the Pacific Ocean.
Our rate of population growth has dropped dramatically since the turn of the century.
In the 1980s and 1990s, the number of people living in B.C. expanded by 19.4 and 20.8 per cent respectively.
Between 2001 and 2011, however, our population growth rate deflated to 10.4 per cent — the lowest in the province’s history.
Two dollars (or more) to revive BC’s prosperity reputation
So, an obvious — and pressing — challenge for B.C. policy-makers is this: how can we restore our province as a high-wage jurisdiction?
Voters in the last provincial general election chose to return a government that had promised hundreds of thousands of high-paying jobs through the creation of a liquified natural gas industry. Let us all hope that it materializes.
But in the interim, there’s another close-at-hand, less-sexy and more prosaic option: a meaningful increase in the minimum wage. It’s something that actually might boost our economy — and especially the slumping retail sector.
How much would do the job? Instead of 20 cents per hour as an immediate hike, how about two dollars? That could provide a macro-economic boost of up to $480 million in the first year alone.
Better yet, how about an immediate jump of five dollars? The B.C. Federation of Labour’s call for a new minimum of $15 per hour could generate a first-year lift in excess of $1 billion.
Again, it’s useful to recall that B.C.’s current gross domestic product in 2015 will be $247.9billion.
A meaningful increase to the minimum wage is not — cannot — be the only arrow in the quiver of economic and fiscal policies available for B.C. policy-makers to spark economic growth.
But it’s not a bad place to start, and could do much to reverse the decades-old decline of our provincial economy.