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Opinion

Incomes are too low

Published on 16/12/2013

The problem with poor people is they don’t have enough money, someone once said.

What sounds like a quip may in fact be a truth. As more people and media outlets are focusing on inequality, the wealth gap between the top and bottom has been exposed to a wide audience, beyond the normal poverty analysts and policy wonks.

Much recent focus has been on the One Percent at the top which the Occupy Movement so successfully highlighted. Various remedies have been offered to moderate extreme CEO pay packages, tax high incomes, or urge the rich to robust philanthropy. Defenders of the rich in right wing think tanks point out accurately that the impact of such measures to remediate the wealth gap would be modest.

But attention is beginning to shift to what is the basis of the problem – that too many people have too little money. Even working Canadians have too little money. Many of them are victims of decades of driving down wage rates as a way of finding efficiency in the production of goods and services. As we’ve said before, the price of a 99 cent burger or a $5 tee-shirt is the 99 cent or $5 wage. This runs counter to the observation of Henry Ford a century ago that he wanted to pay his workers well enough that they could afford to buy one of his automobiles.

In recent public addresses, Richard Florida of the Martin Prosperity Institute has commented on the folly of wage practices that result in 65-70% of the population being unable to participate in the economy, essentially living paycheque to paycheque or always on the edge of financial insecurity. He calls that a tremendous dead weight on the economy that hurts everyone.

In the Globe and Mail series on income inequality, Jim Stanford of the Canadian Auto Workers, one of Canada’s finest economists, identified the decline of collective bargaining as a key cause of low incomes. The aggressive assault on labour unions by the corporate sector and conservative governments in recent decades has achieved their goal of reducing the number of workers covered by union contracts, and depressed wage rates resulting from collective bargaining.

All of which have led to low levels of family income. Dreams of iPads, warm winter vacations, and luxury cars become realities for only about a third of the Canadian population. Ambitions to own a home within reasonable distance of work become attainable at later and later ages for most in our biggest cities because it is taking longer to accumulate the needed savings.

There are people and organizations who have been working these issues for some years, whose work might be boosted by the surge in attention. Here are some of their recommendations.

The Caledon Institute of Social Policy has recommended:

  • Increasing the amount of Canada Child Tax Benefit (CCTB) to a maximum of $5,400 per child.
  • Enhancing the value of the Working Income Tax Benefit (WITB) that is paid to low-income workers and extending coverage to more of the working poor.
  • Creating a federally-delivered Basic Income for persons with severe and prolonged disabilities, and investing the resulting provincial/territorial savings into a wide range of disability supports.
  • A “1.5 solution” to the Canada Pension Plan expansion that would increase the earnings replacement rate by 1.5 times from its current 25% to 37.5% of the Year’s Maximum Pensionable Earnings (YMPE), and raising the YMPE by one-half, from $50,100 to $75,150 in 2013. This option would be of particular assistance to middle-income earners.

Jim Stanford has made some of the same recommendations, as well as recommitting to collective bargaining. Many people have made the point that the creation of labour unions and collective bargaining was a major factor in the creation of the middle class, the same middle class that so many observe is now disappearing. While many business people love to hate unions, diminishing their presence has produced unintended consequences that damage business by eliminating customers. Henry Ford knew what he was talking about.

Around the world, the “Living Wage” movement is addressing incomes at the lower end. In the UK, the non-profit Citizens UK has led the charge to get employers to set their wage rates well above minimum wage rates. 432 employers have signed up to participate, including the City of London, Oxfam, KPMG, Barclays, Lloyd’s of London, and the National Portrait Gallery. One prominent champion is London Mayor Boris Johnson who has said that “paying the London Living Wage ensures hard-working Londoners are helped to make ends meet.”

In Canada, community groups are leading the push for a living wage. The Vancouver campaign puts its 2013 Living Wage for Metro Vancouver at $19.62 per hour. In Hamilton, the living wage should be $14.95; the Guelph & Wellington Task Force for Poverty Elimination launched its campaign in October 2013. The Workers’ Action Centre in Toronto is rallying for a significant raise in the minimum wage from $10.25 to $14.00.

In the US there are “living wage ordinances” where cities mandate that businesses under contract with the city or, in some cases, receiving assistance from the city, must pay their workers a wage sufficient to support a family financially. Examples include San Francisco, Santa Fe, Albuquerque, Boston and Baltimore.

New Zealand also has a living wage campaign.

Also critical to raising the lower end of the wage scale is the protection of workers vulnerable to unscrupulous employers. The Workers’ Action Centre is an effective agency which urges governments to improve their monitoring of workplace abuses such as withholding pay or firing workers just before the end of a pay period and refusing to pay them knowing the worker is unlikely to pursue them in court. Such abuses are disappointingly common, and governments under fiscal constraints have often cut back monitoring and enforcement of labour laws.

With so much attention turned to income inequality, it is important to focus on solutions. Many of them will require that governments and employers do more to boost incomes either through wages or through income supports like benefits and pensions. Some will cost relatively little such as improving labour law enforcement.

What has become crystal clear in recent years is the cost of doing nothing. We now have massive piles of evidence on the negative social outcomes of poverty, which only increase the costs across society in health care, the criminal justice system, education, and labour market absenteeism and turnover.

While some are keen to discipline excessive salaries at the top of the range, the real problem is the low incomes at the bottom, and that is where the solutions must begin. The good news is that we have many good ideas that are ready to be implemented.

An edited version of this Maytree Opinion was first published as Target the poor, not the rich, for real solutions to income inequality in the Globe and Mail on November 27, 2013.

Summary

While some are keen to discipline excessive salaries at the top of the range, the real problem is the low incomes at the bottom, and that is where the solutions must begin.

Topic(s)

Income security, Poverty