Monthly Archives: September 2016

STAGNANT MINIMUM WAGE AND LOW INCOME IMPACT ON CPP ENHANCEMENTS

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STAGNANT MINIMUM WAGE AND LOW INCOME IMPACT ON CPP ENHANCEMENTS

(These thoughts are purely the blunt, no nonsense personal opinions of the author about financial fairness and discrimination and are not intended to provide personal or financial advice.)

Occasionally there are events or things in life that will ‘rock you to your core’, ‘knock your socks off’, or ‘set you back on your heels’.  On writing for this blog, one of these things or events is the minimum wage or low income and what an impact this has on financial lives of the poor and low income regards to proposed CPP enhancements.

From Department of Finance, “Background on Agreement in Principle on Canada Pension Plan Enhancement” (fin.gc) for proposed enhancement of CPP states the following:

‘Today, middle class Canadians are working harder than ever, but many are worried that they won’t have put away enough for their retirement.  Each year, fewer and fewer Canadians have workplace pensions to fall back on.  To address this, we made a commitment to Canadians to strengthen the Canada Pension Plan (CPP) in order to help them to achieve their goal of a strong, secure and stable retirement……

There will be gradual 7-year phase-in below the Yearly Maximum Pensionable Earnings (YMPE), followed by a 2-year phase-in of the upper earnings limit….

The maximum amount of earnings subject to CPP (from 2023 to 2025) will be increased by 14%.  The upper earnings limit will be targeted at $82,700 upon full implementation in 2025…..

In 2023, the CPP contribution rate is estimated to be 1% higher for both employers and employees on earnings up to the YMPE.  Beginning in 2024, a separate contribution rate (expected to be 4% each for employers and employees) will be implemented for earnings above the then prevailing YMPE.

All working Canadians will benefit from an enhancement of the CPP. This enhancement will increase income replacement from one-quarter (25%)  to one-third (33%) of pensionable earnings.

As the CPP enhancement will be fully funded, each year of contributing to the enhanced CPP will allow workers to accrue partial additional benefits. In general, full enhanced CPP benefits will be available after about 40 years of making contributions. Partial benefits will be available sooner and will be based on years of contributions.’

The following information regarding the middle class has been taken from (theglobeandmail):

‘A 2013 internal government document, entitled “What We Know about the Middle Class in Canada,” draws the lines more precisely, deeming the middle class as those whose after-tax income falls between 75 per cent and 150 per cent of the national median – which, using 2012 figures, would include any family taking home $54,150 to $108,300 a year.  “Family,” however, is a catch-all demographic that includes couples of all ages, with or without children, single or double-earners, and single parents. Single people are excluded entirely – one of the fastest growing groups in Canada and a big chunk of the middle class – whose income, using the same government calculation above, would fall between $21,150 and $42,300…..This is one reason why so many millionaires (44 per cent of those who responded to a recent survey by CNBC) outrageously define themselves as middle class when, in fact, once your personal income closes in on $200,000, you leap into the top 1 per cent of earners in Canada….(and top twenty per cent have salaries over $116,000).

Average income (before taxes and transfers) by quintile, all family types, 2013

  • Lowest: Up to $13,000
  • Second: $13,100-$37,000
  • Middle: $37,000-$66,500
  • Fourth: $66,500-$111,600
  • Highest: $111,600 and up

Source, Income Statistics Division, Statistics Canada

What the numbers say: Income levels have fluctuated over the last four decades, with lasting growth concentrated among the wealthiest. In 2011, the incomes of the bottom three quintiles were still lower than in 1976, adjusting for inflation. The top 40 per cent had jumped ahead, with the largest gains made by the top 20 per cent. Compared with 1976, they were the only Canadian households who saw their share of income rise….

What the numbers say: Between 1999 and 2012, the median net worth of Canadian families rose nearly 78 per cent, from $137,200 to $243,800. Most of this wealth is concentrated in housing, especially for lower-income groups. This new wealth wasn’t evenly distributed, however. Gains were higher, the wealthier the family. While median net worth grew by 107 per cent for the richest families, for the bottom 20 per cent it rose just 14.5 per cent. Within the middle class, richer Canadians also did better – the upper middle income saw their worth grow by 90 per cent; the lower middle income by 60 per cent…..

Baby boomers are working longer than expected, debts are rising, and grandma’s housing bonanza is pricing her grandchildren out of the real-estate market, especially in big cities where the best jobs are increasingly concentrated. Paul Kershaw, who studies generational equity at the University of British Columbia’s School of Population and Public Health, has calculated that Canadians in their late 20s and early 30s will have to save, on average, five years longer to produce a down payment, and work one month a year more than their peers in 1976 to cover their mortgage. And according to a June report from the Canadian Centre for Policy Alternatives, thirty-somethings are the only age group with a lower overall net worth in 2012 than they had in 1999…..’

READER COMMENT on above article:

‘This is the reality of Canadians in their twenties and thirties.  They are buffeted on the one hand by a regressive Service Sector (Service Sector-more than fast food outlets- includes banking, insurance, and information technology) senior management style reminiscent of pre industrial revolution feudal management and owners who believe that the 15% federal tax is excessive and should be demolished.  On the other hand these all important Canadians under forty years are hopelessly burdened by the same senior management who are responsible for policy that has created unmanageable long term student debt, unconscionable large mortgages with no long term rate matching to amortization and no defined benefit pension plans….the existing Bank Act and Insurance Act as well as Competition Law provides ample power for an enlightened government to bring fairness to our most important asset – Canadians under forty years old’.

MoneySense (middle-class)data based on Stats.Can. 2011 figures – Middle 20% pre-tax income for unattached individuals is $23,357 to $36,859 and for families of two or more $61,929 to $88,074.

In 2013, Stats.Can. data shows median after-tax income for unattached singles over 65 to be $25,700 and under 65 to be $29,800.  For female lone parent families $39,400, for two parent families with children $85,000 and senior families $52,500.

Living Wage Dollars (politicians) (a basic wage that keeps poor working Canadians off the streets) for 2013 Guelph, Wellington and 2012 Grande Prairie range from $19,284 to $25,380 for unattached singles and $56,796 to $62,844 for two parent, two children family unit.  Living Wage for Guelph/Wellington for 2015 has been set at $16.50 for family unit of two parents and two children. The City of Vancouver employee living wage for 2016 is $20.64.  The calculated living wage for Toronto family unit of four for 2015 is $18.52.

Minimum wage in 2015 (minimum) in provinces looked like this – British Columbia $10.25, Alberta $10.20 ($11.20 in Oct. 2015), Saskatchewan $10.20, Manitoba $10.70, Ontario $11.00, Quebec $10.35, New Brunswick $10.30, Nova Scotia $10.60, Prince Edward Island, $10.35, Newfoundland $10.25, Yukon $10.72, Northwest Territories $10.00, Nunavut $11.00.  For 2016, provincial minimum wage ranges from $10.65 to $13.00.  Very few provinces index minimum wage to inflation.  The Alberta NDP party who came into power in 2014 promises to raise minimum wage to $15 by 2018.

The following table shows CPP contribution and benefit rates from 1987 to 2025.  Future proposed rates are shown in yellow.  It is interesting to note that the maximum CPP pension payout does not equal 25% of the YMPE.  Rather it seems to average around 24%.  Where did the remaining dollars go – perhaps for administrative costs?  Payout for 2025 has been calculated at 32% rather than 33%.

cpp-enhancements

ANALYSIS

  1. Minimum wage or living wage in relation to CPP enhancement – A minimum wage averaging between $10.00 and $11.00 in Canada or approximately $20,000 and $22,000 annual wage for 2,000 worked hours per year means these employees working for forty years will receive virtually nothing in CPP payments in comparison to those employees whose maximum CPP YMPE will be $82,700.  If the estimated amount of CPP after forty years of contribution for $82,700 maximum YMPE will equal about $2,000 per month, then the CPP benefit for $20,000 annual salary could be estimated to be 25% or $500 per month.  Even with a living wage of $20.00 per hour or $40,000 annual salary for 2,000 worked hours will possibly only equal 50% or $1,000 (equivalent to rent or mortgage) CPP benefit per month.  Just what incentive is there for the poor and low income to work when the YMPE will rise to a level that is higher than the middle quintile income of  $37,000-$66,500 and when one of the criteria is working for forty years?  While it is understood that incomes will likely rise over the next forty years, past history has shown that it will repeat itself by not increasing the minimum wage to a living wage equally in proportion to CPP contributions and benefits.  Ever singles and early divorced singles without children deserve better when they  have worked for forty years, never used EI, never used family benefits like maternity or parental benefits, child rearing dropout credits, child benefits and widowed person benefits along with all the marital manna benefits (pension splitting). Question to be answered:  Will the minimum wage along with OAS and GIS rise to same level that CPP YMPE will rise and will they be indexed to same level (33% would be nice) so that CPP, OAS and GIS benefits for the poor and low income will be at least a living wage level throughout their senior lives?
  1.  Upper-middle class will benefit the most while the poor and low income Canadians have been left out of the formula – Politicians and governments continue to coddle the middle class and especially the upper-middle class (so stated by financial government officials themselves in above article “middle class Canadians are working harder than ever”).  The Canadians who will benefit the most from the proposed CPP YMPE are the top two quintiles earning $82,000 and up per year (fourth quintile $66,500-$111,600 average income for all family types as shown in above statistics).  As the CPP YMPE rises at a level that is exponentially higher than the average income level of the middle class, so will the CPP payouts rise at a level that is exponentially higher for the upper middle class.  In the table shown above, the yearly YMPE has risen at a relatively steady rate for each year.  Examples:  The YMPE rose $600 for years 2000 to 2001, $1,200 for 2015 to 2016 and proposed $1,100 for 2022 to 2023.  The YMPE will take a dramatic jump of $7,100 ($67,800 to $74,899) for 2023 to 2024 and $7,800 ($74,900 to $82,700) for 2024 to 2025.  The YMPE, which used to be more ‘middle of the road’ middle class, will now rise to upper middle class levels just like all other defined benefit plans in this country, the higher the salary-the higher the benefit.   (Widowed persons of higher income deceased spouses also benefit more from these plans, but have not made contributions equal to the pension payouts, even though as widowed persons they are now technically single).  It almost certainly can be guaranteed that annual incomes will not increase by that amount for any of the lower income groups and especially for the poor and low income groups.  Pension plans in this country have been made schizophrenic and financially upside-down when they are controlled by the federal government, but minimum wages are controlled by the provinces, while ensuring the wealthy will get wealthier and the poor will remain poor.
  1.  Four things that need to happen to eliminate financial discrimination of CPP enhancements – What is the incentive for ever singles, early divorced singles and poor families to work when government, politicians and businesses purposely implement financial policies that work against them?? Four things need to happen – one. raise minimum wage to a living wage with indexing; two, exponentially increase indexing of OAS and GIS to same level of $82,700 CPP YMPE; three, eliminate marital manna benefits that privilege high income families such as pension splitting and revise programs such as OAS recovery tax so they truly do progressively eliminate OAS according to income for the upper-middle class; and four, review all retirement benefits and retirement programs in totality and with each other (both on federal and provincial level) to prevent creation of financial silos that privilege the wealthy few.

SOLUTION

In addition to the above four items, how about adding six years of CPP benefits to total years worked for singles (ever singles and early divorced singles, excluding widowers), equivalent to child rearing dropout credits? (Added Sept. 26, 2016 but then, singles already work forty years so that idea won’t work.  So how about applying the equivalence scale of 1.4 to the CPP benefits that singles have earned while working)?  It is a known fact that it costs unattached singles more to live (senior-singles-pay-more) than married or coupled family units.  The Canada Revenue Agency knows who singles are as they have indicate themselves as such on their income tax submissions.  Now, wouldn’t that be a novel idea to eliminate financial discrimination and promote financial fairness for singles?

(This blog is of a general nature about financial discrimination of individuals/singles.  It is not intended to provide personal or financial advice.)

CAUSE AND EFFECT OF FINANCIAL POLICIES PROMOTING FINANCIAL DISCRIMINATION OF SINGLES AND THE POOR

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CAUSE AND EFFECT OF FINANCIAL POLICIES PROMOTING FINANCIAL DISCRIMINATION OF SINGLES AND THE POOR

(These thoughts are purely the blunt, no nonsense personal opinions of the author about financial fairness and discrimination and are not intended to provide personal or financial advice.)

This blog has attempted to describe some of the many government, politician, business and family financial policy decisions that lead to financial discrimination of singles and the poor.

The question that can be asked is:  “Is there a  cause and effect relationship to these decisions?”

From Wikipedia and other online sources (study) the definition of ‘cause and effect’ is follows: – Causality (also referred to as causation, or cause and effect) is the agency or efficacy that connects one process (the cause) with another process or state (the effect), where the first is understood to be partly responsible for the second, and the second is dependent on the first. In general, a process has many causes, which are said to be causal factors for it, and all lie in its past. An effect can in turn be a cause of many other effects.

A cause-effect relationship is a relationship in which one event (the cause) makes another event happen (the effect). One cause can have several effects. Cause-Effect Criteria – In order to establish a cause-effect relationship, three criteria must be met. The first criterion is that the cause has to occur before the effect. If the causes occurred before the effects, then the first criterion is met.  Second, whenever the cause happens, the effect must also occur.  Consequently, if the cause does not happen, then the effect must not take place. The strength of the cause also determines the strength of the effect when criterion two is met.  The final criterion is that there are no other factors that can explain the relationship between the cause and effect.

A cause is why something happens.  An effect is what happens.

While no scientific ‘cause and effect’ relationship (i.e. fishbone diagrams) has been applied in this blog, certainly many of the financial discriminatory effects of policy decisions (or causes) have been described.  Some of these effects are listed below.

Boutique tax credits

  • Every political party has introduced tax credits to give financial benefits to certain members of the population more than others. June 16/16 (credit)

Business policies

  • Financial decisions by businesses such as not wanting to have minimum wage increase and not wishing to pay proposed increase of CPP employer contributions continue to help disintegrate the financial well being of singles and the poor. Sept. 12/16 (canada-pension-plan)

CPP

  • Financial discrimination of the CPP plan.  Aug 31/16 (plan)

CPP enhancements

  • Financial discrimination of CPP enhancements includes higher income earners only paying 8 percent instead of 11 percent CPP contributions on earnings between $72,000 and $82,700. Sept 12/16 (canada-pension-plan)

Family tax credits

  • Marital manna and family tax credits given over the years have continually increased the financial discrimination of singles and the poor.  Many of these benefits have been implemented by the Federal Conservative government over the last decade and perpetuated by the Federal Liberal party since coming into power in 2015 as well as provincial parties.  Aug 2/16 (credits)

Housing Affordability

  • Just 1,048 new affordable housing units in Calgary have been built over the past 14 years; the need for affordable housing was great in 2002 and it remains so today (most of these years were under provincial forty year reign of the Conservative party). July 17/16 (housing)
  • Homelessness – Two thirds of shelter beds in Canada are filled by people who make relatively infrequent use of shelters and are more likely forced into shelters by economic conditions (due to structural factors, the state of housing and labour markets that destine the very poor to be unable to afford even minimum-quality housing)…attacking housing affordability from the other side, by reducing housing costs, would also be effective….vast majority of homeless shelter users are single. May 23, 2016 (homelessness) and July 17/16 (housing)

Housing Upside Down Pricing and Financing

  • Upside down pricing of housing where purchasers of smaller units pay more per square foot means they will proportionately pay more house taxes, education taxes, mortgage interest and real estate fees on less house and less take home pay. Nov. 19/15 (upside-down)

Income tax privileging for the middle class and the wealthy

  • Tax cuts on both federal and provincial levels have targeted the middle class and the wealthy while making poor pay same amount or more in taxes.
  • Alberta flat tax of 10 percent increased from 8 percent for low income. May 23/16 (homelessness) 
  • Federal tax by federal Liberal party decreased by 1.5% for those earning between $45,282 and $90,563. Aug. 23/16 (family)

Lost Dollar value

  • Lost dollar value list was created to show lost dollars experienced by singles because married or coupled persons are able to achieve more financial benefits.  Some of these include pension splitting, reward programs and Employment Insurance (EI). April 10/16 (value)

Marital manna benefits

  • 1% spousal lending rate, spousal RRSP, TFSAs times two with no cap on total amounts accumulated over years are all within legal limits of financial laws – Six Reasons….(six)

Marrying for money pays off

  • Study shows persons who marry and stay married accumulate nearly twice as much personal wealth as a person who is single or divorced.  Jan. 17/16 (pays)

Maternity and parental benefits

  • Studies have shown that middle class and wealthy families benefit more from maternity and parental benefits.  Many poor families cannot afford take full maternity and parental leave.  August 23/17 (family)

Minimum wage/living wage

  • Decisions and arguments to not increase minimum wage or implement living wage have a dramatic impact on financial well being of singles and the poor.  May 4/16 (discriminatory) and Sept. 12/16 (canada-pension-plan)

Net worth and assets

  • When net worth and assets are not included in family benefit formulas, benefits are often given to those who need these benefits less (middle class and the wealthy) than the poor who have less net worth and assets.  August 17/16 (assets)

OAS recovery tax (OAS clawback)

  • OAS clawback benefits wealthy couples and some widows the most.  OAS for couples only begins at net income of $145,618 ($72,809 per person) thus allowing them to receive full OAS of $13,760 as a couple.  Not many senior singles (except some widowed persons) who could ever hope to achieve a net income of $72,809. Aug. 29/16 (oas)

Pension splitting

  • Pension splitting benefits only wealthy married or coupled family units.  Singles don’t get to pension split. Jan. 31/16 (government) and May 4/16 (selective).

Reward programs, company perks, money benefit programs, and fee schedules benefit families the most

‘Selective’ social democracy

  • There has been much that is good about democratic socialism, but there also has been some negative outcomes .  One outcome is ‘selective’ democratic socialism where certain members of society receive more social benefits than others. May 4/16 (selective)

Senior singles pay more

  • Senior singles often ‘pay more, get less’ because they are not included equally in financial formulas.  Singles also help support widowed persons and survivor pension plans. Dec. 22/15 (senior) and June 2/16 (retirement)

Singles not included or improperly identified in family definition

  • Ever singles (never married, no kids) are often not properly identified in family definitions.  Widowed persons and single parents are not ever singles.  Widowed persons and single parents are afforded some benefits that ever singles do not receive.  Dec. 2/15 (false) and Aug. 7/16 (definition)

CONCLUSION

It is very clear from the many examples above that government, politician, business and family financial policy decisions are often made in isolation and in financial silo fashion.  Continuation of these practises without a clear path to proper evaluation of all ‘across the board’ financial formulas and their ‘cause and effect’ on each other will only lead to perverse financial privileging of the middle class and wealthy while continuing financial discrimination of ever singles, early in life divorced singles, single parents and the poor.

(This blog is of a general nature about financial discrimination of individuals/singles.  It is not intended to provide personal or financial advice.)

CANADA PENSION PLAN ENHANCEMENTS WILL DO NOTHING TO ELIMINATE FINANCIAL DISCRIMINATION OF SINGLES AND THE POOR

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CANADA PENSION PLAN ENHANCEMENTS WILL DO NOTHING TO ELIMINATE FINANCIAL DISCRIMINATION OF SINGLES AND THE POOR

(These thoughts are purely the blunt, no nonsense personal opinions of the author about financial fairness and discrimination and are not intended to provide personal or financial advice).

The last post discussed how the CPP plan in its present format financially discriminates against singles and the poor.  CPP is part of the Pillar 2 plan of Canada’s retirement income system for seniors.  The last post (program) showed how Canadian seniors will not receive full CPP benefit if they have not made full work contributions for forty years and if they do not have full Yearly Maximum Pensionable Earnings(YMPE) contributions for those forty years.  Canadians most likely to not receive full CPP benefits are those who have not worked for forty years or have not been able to make full contributions because of low income.  Senior singles also pay more and get less in seniors benefits (pay-more).

Recently there has been much discussion about CPP contributions and benefits being enhanced because Canadians are not saving enough for their retirement.  Apparently, the enhancements will include increasing the amount of required CPP contributions and, in return, the amount of CPP benefits received.

Enhancements include:  Once fully implemented in 2025, the total CPP contribution rate (which is shared between employees and employers) will increase from the current rate of 9.9 per cent to 11.9 per cent of eligible earnings up to a maximum of $72,500. In addition, earnings between $72,500 and $82,700 will also be subject to mandatory CPP contributions at a lower rate of 8 per cent.

CPP retirement benefits will also be increased. The replacement rate for pensionable earnings will increase from 25 per cent to 33 per cent. According to the Department of Finance, it will take “about 40 years” for the full increase in retirement benefits to be phased in.  The Department of Finance has stated that like the current program, future benefits will be based on the years of contribution and actual contributions.

The significance of these changes is astounding.  Future benefits will remain the same based on the two principles of the years of contributions and actual contributions, in other words, same old, same old.  The premise remains the same – individuals with highest YMPE will receive the most CCP, while those at lower income levels will receive the least CPP benefits because they have not been able to make maximum CPP contributions.

The YMPE will be be raised to between $72,500 and $82,700 (up from $54,900 or approximately $25 per hour in 2016).  Based on approximately 2,200 hours of work per year, $72,500 equals approximately $33 per hour and $82,700 equals approximately $38 per hour.  In other words, the more income an individual makes, the more CPP benefits they will receive.

In 2013, the minimum wage was around $10 in all provinces. In constant dollars, this rate was similar to the rate observed in the late 1970s.  It is only in the last several years that the minimum wage has increased somewhat.   Historically, Alberta’s minimum wage went from $8 in 2007 to $9.95 in 2013.   In addition to the stagnant wage, the Alberta income tax rate in 1999 went from a graduated rate based on income to a flat tax of 10%.  The tax rate for  the middle class and wealthy was changed to 10% while the rate for lower income individuals went up from 8% to 10%.

The 10% tax rate remained in place for about fourteen years until 2015, when the NDP came into power and reverted the flat tax system to a graduated system.The current minimum wage rose to $11.40 in October 2015 and is set to rise to $12.20 in October 2016.  This is has all been a result of the NDP party coming into power in Alberta after a forty year reign by the Progressive Conservative party.

At the present time, the difference between Alberta’s minimum wage today of $12.20 per hour and the present CPP YMPE rate of $25 per hour is striking.  What this means is that the middle class and wealthy working for forty years will be able to attain greater CPP wealth than the person earning a minimum wage who has faithfully worked for 40 years.  Why wouldn’t those working at minimum wage be angry and in utter despair at policy decisions that don’t financially include them with fairness and equality?  If ordinary persons without math degrees can figure this out, why can’t government, policy makers and businesses?

In order for there to be financial fairness, the minimum wage has to rise at same rate as the increase  the CPP YMPE rate!  Think that is going to happen, don’t hold your breath!

PROBLEMS:  

  • Governments and businesses give many excuses as to why minimum wage should not be raised
  • Businesses don’t want to pay the proposed increases of their required CPP employer contributions because they say it will impact their businesses-they are threatening to go to contract and part time employees.
  • Currently only two provinces index their minimum wages based on the Consumer Price Index, thus offering guaranteed protection from wage erosion. Currently, there is no accountability for those actually determining the minimum wage.
  • With new proposed enhancements earnings between $72,500 and $82,700 will also be subject to mandatory CPP contributions, but at a lower rate of 8 per cent.  Why is it that higher income earners always get the reduced rates?  Why should those earnings between $72,500 and $82,700 get a lower rate of 8 per cent?  What is the factual basis for choosing a lower rate for income range between $72,500 and $82,700?
  • Minimum wage or a living wage and income tax rates are two very important factors that help determine quality of financial life for singles and the poor.  So why is that politicians, governments and businesses always give better rates to higher income earners (middle class and wealthy than lower income earners and to families over singles)?  Those at lower income levels are more often made to pay more while getting less.  Examples of this are increasing minimum wage at pitiful rates and making lower income earners pay the same income tax rate while decreasing rates for the middle class and wealthy as described above (Alberta Conservative government).   The present Liberal party did same by reducing taxes only for the middle class, but not reducing rates for the poor.
  • Upside down finances continue to be perpetuated (finances) so that the poor are forcibly made to remain poor by the upside down financial decisions by government and politicians.  Why don’t single persons deserve a full CPP benefit if they have been faithfully employed for forty years, (never used EI, never used maternity/paternity benefits, etc.) but have not been able to contribute full YMPE because of a lower income?

CONCLUSION

The policy decisions by government for CPP enhancements past and present have created a pillar whose base is cracked and breaking.  The only way most ever singles, early divorced singles, single parents and the poor can ever hope to reach the maximum CPP YMPE is by working multiple jobs.   Married or coupled family units may have the option of both spouses working and receiving two CPP pensions.  The indexing of a minimum wage or a living wage is paramount in avoiding financial discrimination in CPP enhancements for singles and the poor. To do anything less is a blatant violation of the human and civil financial rights of poor and low income Canadians.

THE MINIMUM WAGE IN CANADA

An excellent article “The Minimum Wage in Canada” by the Canadian Labour Congress, April 2015 gives an excellent perspective on minimum wage (minwage).

Some of the details of this article include the following:  

“A profile of minimum wage workers will show that the stereotypical teenage employee is not the reality and many individuals are struggling to provide for their families on minimum wage incomes. Common concerns about increases to the minimum wage, such as a rise in unemployment rates, the financial impacts on small business, and alternative policy changes to address poverty will be discussed in order to break down the myth that an increase to the minimum wage will have detrimental economic impacts…..

British Columbia froze its minimum wage at $8.00 an hour for almost a decade.  During this freeze period minimum wage earners were put under increasing financial strain as inflation restricted their ability to consume.  Currently only two provinces index their minimum wages based on the Consumer Price Index, and are offered guaranteed protection from this type of wage erosion….

There are two clear considerations that must be made when evaluating the adequacy of the minimum wage in Canada….Letting the real value of the minimum wage deteriorate just creates a cycle of poverty….

For those who oppose increasing the minimum wage in Canada, there are several arguments used to justify maintaining low rates. …The amount of people earning the minimum wage has remained under 10% of the total working population. This is not a large enough portion of the population to make a difference; if most people already earn above the minimum wage there’s no need to increase it. One thing often used to strengthen this argument is that, of the small number of minimum wage workers that exist, the majority are teenagers or students who are not attempting to support a family. Instead, they are working for personal money or for the experience and will soon move up the job ladder. The first major issue with this argument is that it blatantly accepts discrimination as a reason to pay someone low wages. Age is one of the prohibited grounds outlined in Section 15(1) of the Canadian Charter of Rights and Freedoms which guarantees all citizens equal and fair treatment under the law. To say that the wages of adults should be prioritized over the wages of young workers is a clear violation of this right. The purpose of setting a minimum wage is to create a sense of equality for vulnerable workers of all ages. Second, teens account for less than half of the minimum wage earners, so there are quite a few adults in Canada earning the lowest legal wages. Young adults may not have been active in the labour market for long but they are just that, legal adults who have financial responsibilities. Some do attend a post-secondary institute; however, that does not mean they are working out of choice. Not all young people have the financial support of their families to help them pursue their education. They rely on their paid employment to cover the ever increasing costs associated with education. ….The reality is that minimum wage earners are not one specific group of people and they definitely do not fit the stereotype of a few teenagers and students getting their first jobs. ….

The philosophy associated with our economic system is the constant need to keep costs as low as possible, which also means low wages for much of our workforce …. The theory is that as wages increase operation costs, employers are forced to find other ways to make up the difference. ….Although Canada’s unemployment rate has made some recovery since the 2009 recession, as of August 2014 it was still 7.0%…. Given the current economic climate, this argument suggests that the potential repercussions that increasing the minimum wage might have on unemployment rates, could seriously affect Canadian society. After examining the economic research available on the connection between unemployment and minimum wage increases, it is difficult to say with conviction how the two factors are related, if they are at all….. According to The World Bank’s World Development Report 2013: Jobs, there is no known universal impact of the minimum wage on unemployment rates. In order to say with certainty what the impact actually is, individual countries would have to closely monitor the labour market and compile vast amounts of research (World Bank, 2012). Our opinion on the matter is very similar. Based on the research that has already been done, there is too much contradicting evidence to say with confidence what the real effects on unemployment rates are.

A proposed alternative to increasing the minimum wage is to instead increase the basic personal tax exemption…..This policy does not introduce more money into the economy, it simply redirects it from government revenues to individual households. ….The redistribution of money does not make Canadians better off, it only continues to subsidize the low wages offered by employers…..

Minimum wage workers are more likely to be employed with a large firm than a small company; a troubling trend that requires further examination.  This recognition that large scale companies are more likely to pay the minimum wage than small businesses raises some serious concerns about who is utilizing minimum wage laws and why. ….However, some of Canada’s largest companies continue to offer many of their staff members only the minimum wage despite their recent success and profitability…..

Individuals earning low wages are the least likely to be meeting all their needs, so when their wages increase instead of saving their new income they use it to purchase the goods they have been lacking. This directly contrasts the wealthy who are more likely to save or invest additional income than inject it back into the local economy.

Minimum wage laws can actually benefit communities. Studies have shown that because individuals cannot afford to financially support their households on the minimum wage, they often turn to social services for assistance ….This means that the taxpayers are essentially subsidizing the low wages of a company that makes billions in profits. Additionally, when large firms move into an area and offer low priced goods, it drives down the wages of workers employed at small firms that need to reduce costs to stay competitive….. In some cases, not only will wages in the area drop but small employers will be forced to close—eliminating jobs altogether.

Even with most provinces attempting to conduct neutral reviews on the minimum wage rate, the final decision still remains politically motivated. One team of researchers found that, while the proximity of an election did not influence the decision to alter the minimum wage, the political ideologies of the government in power did. The New Democratic Party in particular were more likely to have a higher minimum wage rate in place than other parties (Dickson & Myatt, 2002). A 2006 study (Green & Harrison, 2006) found similar trends relating to the minimum wage and political agendas; conservative governments would let the minimum wage stagnate and centre-left parties would approve increases but neither were willing to make drastic changes. ….The issues at play when debating the appropriate minimum wage rate are complex, as it is not exclusively an economic policy….. Rather it is the ideology of “universal fairness” that generates support ….. This attitude is further portrayed by research that suggests the public perception of poverty is not to blame the victim. One study found that respondents, instead of citing the self-destructive behaviours of individuals like laziness and the inability to adhere to a budget, were more inclined to believe structural factors were the major contributors to poverty. This included social and economic factors like low wages (Love, et al, 2006). Individuals also recognized that employment no longer guaranteed people the means to escape poverty, as wages are often insufficient and, while workers are often willing to work more hours, full time positions are becoming more rare (Love, et al, 2006). The reality is that minimum wage policy is an economic, political, and social matter. As Canadians we must decide what we need from our minimum wage rates, then determine how to balance all these factors to achieve that goal. Decreasing wage inequality should be the first priority, as minimum wage policies have the potential to prevent extreme poverty. Increase the wages of other low paid workers and allow individuals to accumulate more financial support (World Bank, 2012). We must decide what quality of life we feel all Canadians deserve. Should full-time workers only be able to meet their basic needs like food and shelter, or are they entitled to a lifestyle that also considers their social and political well-being when determining basic living standards….? It is not possible to set the minimum wage based solely on economic factors because these broader social implications are the end results for Canadians.

Currently, there is no accountability for those actually determining the minimum wage.

This is not an issue that only affects businesses, so the human aspect needs to be given more priority in the minimum wage debate. While it is important for our economy to remain stable, we must also ensure the needs of workers are being met. They should be able to enjoy a certain standard of living; however, full-time employment is no longer a guaranteed escape from poverty. It is time to evaluate what our society deems fair, and compensate minimum wage workers accordingly. Raising the value of labour at the bottom, is a raise for everyone in Canada”.

(This blog is of a general nature about financial discrimination of individuals/singles.  It is not intended to provide personal or financial advice).