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Living Wage Law for Vancouver Won't Help The Most Vulnerable

07/08/2015 06:44 EDT | Updated 07/08/2016 05:59 EDT
Marina Borodina/Instagram

Mayor Gregor Robertson has started a push for the City of Vancouver to become a "living wage employer." If Vancouver follows the lead of other cities, this would mean enacting a law that also requires private employers who do contract work for the city to pay their workers a wage promoted by activists.

While this policy is being trumpeted as a way to reduce inequality and poverty, in practice a living wage law would do little to help the most vulnerable workers.

A living wage law is similar to a minimum wage in that it is a government-mandated wage floor. However, living wage laws apply to smaller groups of workers and typically require a much higher wage. The mayor's office is pushing for a $20.68 per hour living wage rate, which is double the current provincial minimum wage ($10.25).

Living wage laws are a rarity in Canada. In fact, New Westminster is the only Canadian municipality to enact one.

In the United States, over 140 municipalities have passed a living wage law and the evidence from there should serve as a cautionary tale for Canada. The American experience shows that living wage laws reduce employment opportunities for low-wage workers and fail to help the most impoverished families.

None of this should be a surprise to those familiar with the research on minimum wages. When governments mandate a wage above the prevailing market rate, employers respond by cutting back on jobs, hours, and on-the-job training. Less skilled workers -- those with fewer qualifications and experience -- end up as collateral damage.

That conclusion is supported by the best and most rigorously analyzed evidence on living wage laws. Yet activists tend to overlook these consequences. In reality, while some workers may benefit from a higher wage, their gain comes at the expense of others who lose employment opportunities.

According to research by leading scholars David Neumark and Scott Adams, a 100 per cent increase in the living wage -- the equivalent of going from an hourly minimum wage of $10 to $20 -- reduces employment for low-wage workers by 12 to 17 per cent. Workers adversely affected lose valuable employment income and the ability to gain new skills and experience that would help them advance up the income ladder.

Other research shows that employers respond to living wage laws by hiring more qualified workers to justify the artificial wage increase while passing over those with fewer skills.

This is a highly perverse outcome since less-skilled workers are presumably among the very people the policy is intended help. If employers end up hiring more productive workers who would have been paid a higher wage anyways, it defeats the purpose of adopting living wage laws in the first place.

And living wage laws often don't help the poorest families, in part because the overwhelming majority of beneficiaries are not poor. In one study of seven major U.S. cities, researchers found 72 per cent of workers whose wage increased after a living wage law was implemented were not poor. Of the 28 per cent who were considered poor, only one-third moved above the poverty line.

Aside from the failure to actually help the poorest workers, Vancouver's living wage law will increase the cost of city services if the city absorbs the higher labour costs of government and contracted workers. That ultimately means higher municipal taxes or reduced spending on other services. Taxpayers and city residents lose both ways.

Some taxpayers may be willing to accept more costly city services as a result of a living wage policy if they actually helped those most in need. But the evidence shows otherwise. Living wage laws reduce employment opportunities for low-wage and low-skilled workers. Mayor Robertson would do well to look at the evidence and reconsider his position on living wage laws.

This piece was co-written by Hugh MacIntyre, Fraser Institute policy analyst.