Thursday, January 16, 2014

The Working Poor, Hours and Pay

The working poor are more and more of an issue in Canada.  There are two aspects to this, the rate of pay and the number of hours of work.

The minimum wage in Canada is set by the provinces but at the moment the range of minimum wages is only $0.50 per hour between the lowest and highest.  The provincial average for minimum wages is $10.14 per hour.   It is also true not a lot of people earn minimum wage but a lot of people earn only a dollar or two more than minimum wage, their pay is fairly directly tied to the minimum wage.   A higher minimum wage would push up the wages for others.

There is an argument that a higher minimum wage would reduce the number of jobs because employers are not able to pay the higher rate and still be profitable.   I have trouble with this argument because the employer can raise what they charge for the product.  Almost all the low wage jobs in Canada are in the service and retail sector who have a captive audience  - I can not order out pizza from Vietnam.   There is no down side to society to fast food outlets charging 10% more for their food and that would be more than enough to cover a large increase in minimum wages.

So how high should the minimum wage be and how should it be set?   Clearly the minimum wage can not be set at $100 an hour.  I do not have a good answer to what it should be but I think the mechanism to set the wage should be tied to the rate of inflation in some way.  Maybe the minimum wage should be rise at twice the rate of inflation for a decade?  This would be a rise in the real value of the minimum wage by about 60% over the period.   Setting out such a clear and gradual pattern for the long term allows employers to plan for the cost increase.

While low wages are a major reason for people being the working poor, I think that part time work is a bigger problem.   It is a beneficial public good for as many people as want full time work to be able to get full time work but this is not what is happening in our society among the working poor.

A much bigger problem I see is the proliferation of part time low wage jobs.   It seems most fast food restaurants will not allow staff to work full time hours.   It is normally for someone in a McJob to work 20 to 25 hours a week and not to know their shifts will be very long into the future.   It means that it is very hard to hold two part time jobs and get 40 hours a week.  

I think the time has come for government to make some changes to financially reward employers that have full time staff and penalize the heavy use of part time staff.   Government could use EI, CPP and vacation pay as ways to make it financially beneficial to have full time staff and not part time staff

If there were a basic flat employer EI fee for each employee of $700, this would increase the cost of part time employees.   This is roughly the employer portion of EI for a full time employee at $13.30 per hour.   The employer would have to pay more EI if the employee was earning more than $26,615 per year.   For a 20 hour a week part time employee on minimum wage this would be an increased cost of $430.43 per year for the employer.   I would also make this flat fee payable in total for the employer as soon as someone is hired with rebate if they quit before the year is out.

Something similar could be done with CPP so that there is no real cost implications for employers with full time staff but that employers of part time staff have a clear financial incentive to make staff full time.

Next, make vacation pay for all registered employees a flat weekly among based on what they would be owed for a 40 hour week.    At minimum wage and a 4% vacation pay rate, this would be $16.40 per week in BC.   It means at 40 hours a week the effective pay is $10.66 per hour but at 10 hours a week it becomes $11.89  per hour.  

Some may say "What about the people that want part time work?".  I think it is more important to first ensure that people who want full time work have the hours they need before offering part time positions.   Even with the changes I suggested there will be more than enough part time jobs out there for the people that want them.  

One final suggestion is that the country end the temporary foreign worker program for any low paid or low skilled jobs.   Temporary foreign workers should be coming to Canada to fill positions for which there is a temporary shortage of the skills needed.  Wages for temporary workers should set at 25% above the median wage for the job.    There is no reason a fast food restaurant should be getting temporary foreign workers when there numerous Canadians willing to do the work.   I understand employers want this because they are unwilling to pay the higher wages needed to attract the workers.   The current model for allowing temporary foreign workers is a bad market distorting intervention by government.  

If the country really needs more low skilled workers, Canada should open up our immigration policy and allow the unskilled to come to Canada.

It is becoming more and more of a problem in this country when there is an increasing gap between the working poor and the well off in the country.   People may disagree with my suggestions, but if not them, what should we do?
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