How to End “Working Poverty” in Canada

[The following is a re-posting from my weblog “On Second Thought” posted weekly on ContextwithLornaDueck.com]

There should be no such category as “working poor” in Canada. As many economists have shown, if we paid people who work full-time for a full year a minimum wage of $15 an hour, we would have no working poor in this country.

I’m not an economist. And let me anticipate the usual reaction when a professor tells business owners and politicians what to do: No, I have not had to make a payroll, nor get elected.

So I’ll stick to what I do know.

As a historian, I recall the gross mistreatment of workers during the industrial revolution in Britain. Institutionalized poverty, seen in filthy, tiny row house upon row house—really, slum upon slum—was justified by owners as simply the best they could do…until reformist governments made them treat their workers better.

Startlingly, those mills didn’t all go out of business. The owners’ bluff was called, and England’s economy flourished.

I likewise think of an entire region’s economy—that of the antebellum South in the USA—that was dependent upon chattel slavery. This even-more-awful form of institutionalized poverty was defended as, yes, simply the cost of doing business. Without slavery, it was proclaimed from lecterns and pulpits for decades, a whole honorable way of life would collapse.

We all have settled opinions now about just how honorable that way of life actually was. And the last time I visited Atlanta and walked among its giant office towers, I noticed fairly strong evidence that their economy had not, so to speak, gone with the wind.

Canadian executives and board members typically offer the same rationale for failing to pay people a living wage: We simply can’t pay any more than we do.

As I say, I’m no economist. But let’s submit this claim to a pretty basic test.

If everyone involved in the company—at every rank—is making less than $15 an hour, then yes, you can’t pay anyone any better. But until the executives have cut their salaries back, and until the directors have done likewise, until everyone for whom they are responsible is making at least a living wage, then their argument rings hollow.

Why should they be enjoying a far more comfortable standard of living when people in their care are in poverty?

Note that this not an argument for everyone being paid the same. It is an argument against paying people badly, and shrugging about it.

The usual retort will be that someone somewhere else will pay less, and thus gain a competitive advantage. Even if we raise the minimum wage across the country to $15 an hour, foreign companies will undercut us.

Maybe so, although even my elementary reading in economics tells me that the cost of labour is far more complex than mere wages. In fact, recent economic history tells me that many companies hurried to “offshore” their labour, only to find tremendous problems in quality control, supply chain dependability, component compatibility, worker integrity, and more. So they’re moving back.

Nonetheless, and this is the moral point an ethicist simply has to raise: The right response to someone else’s treating people badly surely cannot be to exploit your own workers.

Furthermore, if certain business leaders cannot run profitable companies without injustice, then maybe the problem isn’t with the employees, or the market, or the vendors, or anyone else. Just because this set of executives or directors can’t do it doesn’t mean it can’t be done! Perhaps it’s time to move out of the way and let someone more capable do what needs doing for the sake of everyone involved.

Or just shut it down. The cost of doing business simply cannot be injustice.

It’s time to end specious arguments endlessly repeated by the well off at the expense of the poor. There is no mystery to ending the misery of the “working poor” in this country. There is just refusal.

12 Responses to “How to End “Working Poverty” in Canada”

  1. Matt

    John,
    Apparently you see it as injustice to pay anyone who works full-time less than $15 an hour. If the owner of the company is rich, and a full-time employee is poor, the owner is – by definition – treating the employee badly. There is intuitive appeal to this, but I would expect a careful thinker like yourself to do better.

    The argument is basically meaningless if divorced from the economic economic theory and the anticipated real-world effects. In particular, the issue of value-added by workers must be understood for a meaningful discussion of “appropriate” wages and the ramifications of minimum-wage laws. The most important thing to appreciate is this: If a worker in a low-margin industry (such as retail or fast food) cannot add $15 of value, her job will not survive a $15 minimum wage. She will be replaced by a) fewer, but more productive workers, b) technology/machinery (self-checkout registers) c) nothing: the business will cease to be profitable and cease to exist (even though the owner made more than $15 an hour previously).

    Now, that’s not to say the law won’t benefit some workers. It will benefit workers who can add more than $15 of value but are currently underpaid. But most of those workers will eventually command higher wages anyways, whereas the unemployed workers have just had the bottom rung of the economic ladder removed from them. That is, a teenager who would use the minimum wage job as an opportunity to develop some skills and build a resume stays home instead, with increased likelihood of joining the class of “non-working poor”.

    It’s an important discussion, but can’t be had in an economic vacuum.

    Cheers,

    Matt

    • John

      I’m no economist, as I said. But your apologia for exploiting workers (!) is one that is ALWAYS presented in such conversations, so even I might be able to engage it as an ethicist, and I shall be glad for your reply to help me think about this better.

      You seem to brush by the difference in wages between executives and workers. But isn’t part of the overall cost of doing business paying executives that much, in which case that seems relevant to what is paid the workers? Your narrowing the issue to “$15/hr worth of value” is, I’m wondering, far too narrow a purview to consider such things–economically speaking.

      What I mean by this is that you construe the situation as if the only pertinent variable is the labour cost of the worker. And if she can’t generate $15/hr worth of value, then she has to be paid less or laid off. But to me, at least, this begs the question as to whether the executive is generating $100/hr worth of value… and (a second argument) even if he is, if he were to make sure that she would paid a living wage by taking, say, a 5% pay cut, now she gets a living wage AND likely becomes a different and better employee (no longer needing to moonlight, for instance) which advantages him, too.

      Note that I am confining myself strictly to economic considerations. I’m just trying to think through the actual economics of the situation in light of my concern that no one should be willing to work full-time and yet have to flounder economically.

      • Matt

        I’m totally sympathetic to the idea that many executives are overpaid. And you are certainly right to say that paying workers more can have benefits to employers. Many employers have made exactly this calculation, and to wonderful effect: Whole Foods, Starbucks, Trader Joe’s…That’s great in those cases, but beside the point. The problem is that you and I are in no position to determine the value of any given laborer or executive. That question is best determined by those individuals and the owners/shareholders. In other words: the market. The price mechanism is the best proxy for value we have, and armchair executives shouldn’t be the ones who decide how a company should allocate its resources.

        As far as the accusation that my apologia is common, I plead guilty! I’m happy to throw myself in with the majority of economists here who fear the damaging unintended consequences of well-meaning but ill-informed policy 🙂
        https://www.epionline.org/studies/survey-of-us-economists-on-a-15-federal-minimum-wage/

        Another point that will ALWAYS be made in these debates: Minimum wage laws tend to adversely affect exactly the people they are meant to help: minorities and people with limited education and skills. Effectively, the law discriminates against anyone who isn’t skilled enough to produce $15/hour. Effectively, it is a ban on hiring employees below a certain threshold of productivity. Sure, an employer could go ahead and hire them at a loss, but that would be charity, not business.

        Along the same lines, it is the poor who are most adversely affected when minimum wage increases are passed through to consumers: Small increases in prices of consumer goods and food are more of a burden on the poor than on the rich, so equivalent to a regressive tax.

        From a policy standpoint, an Earned Income Tax Credit is a much more efficient way of helping the working poor.

        Btw, if you want to sharpen your thinking on this in an entertaining way, you can do no better than to watch some old footage of Milton Friedman discussing it. You may disagree with him, but he’ll make you earn it!

  2. Matt

    Lots of cherry-picked data from HuffPo and DOL that can be used do support a prior view.They obviously have an axe to grind, so I’ll leave it to decide how objective they are. As the more neutral article says, economic theory would predict minimum wage raises have a negative impact on employment – particularly at the low end of the productivity spectrum. The data, as always in these realms, are complicated, which is why there is still controversy. I still believe most economists think a $15 minimum wage would do more harm than good, although that third article painted a muddier picture.

    But hey, if you won’t listen to Uncle Milt, then I certainly stand little of persuading you! I’ll just leave with this parting blow: The Chicago school, with their allegedly narrow view of human beings, have done more for the case of the poor than all the well-wishers of the 20th century combined. It’s results that matter – not intentions. I suspect that you and I have broadly the same goals, but disagree about how to achieve them. And that is where the game must be played – emotional appeals aside.

    And I give you this challenge: Before you dismiss Friedman’s position (and before you make any further economic prescriptions!), read and review Free to Choose. A liberally-inclined, vaguely neo-Luddite friend and I recently read it together, and it altered his views.

    • John

      Well, you SAY it’s all “cherry-picked,” but you’ll agree, I trust, that that’s just swatting away something inconvenient to your position even as I understand that you don’t have time to offer a point-by-point refutation.

      The crucial point between us, however, is that the first author is a credentialed economist and the Department of Labor is informed by other credentialed economists. Yet your initial challenge to me was that “there is intuitive appeal to this, but I would expect a careful thinker like yourself to do better.” I respectfully suggest that perhaps that wasn’t either the most charitable or most accurate way to engage what I wrote. You sounded as if ECON 101 was all that was needed to sort this out, and I have demonstrated that in fact that isn’t so. Indeed, the third article, by yet another economist, shows that economists line up on different sides of this issue on which there is precious little real-world data. So your little lesson in elementary economics à la Chicago really isn’t sufficient to come to the conclusions that seem luminously obvious to you, right?

      Nonetheless, I appreciate your taking the time to make your views more clear and for suggesting a source for my further education and edification. I will take it seriously, with thanks, even as I trust it is also plain why I am not (yet) withdrawing anything I wrote.

  3. Matt

    That’s fair. Moral economic arguments that flout my own “Chicago”-leaning assumptions tend to bring out my inner polemicist – for whom accuracy and charity probably are not hallmarks…

    • John

      Thanks, Matt. I sincerely appreciate the pushback from someone with evident expertise to share, and I do take your suggestions seriously. Would that my interactions on the Net were always of this quality!

  4. Matt

    Thanks, John. Your thoughtful engagement with different perspectives is one of the reasons I always read your posts. With so much of internet discourse consisting in tribal warfare and echo chambers, careful, independent thought is refreshing and all too rare.

  5. Jim

    The conversation reminds me of the the sword duel between Inigo Montoya and the Dreaded Pirate Roberts in the movie Princess Pride;

  6. WoundedEgo

    The “race to the bottom” of the price of food that is fueled by capitalism seeking higher and higher profits is absolute. Corporations are legal fictions designed to:

    * shield corporate dirty-doers and investors from personal responsibility
    * ensure that the investors’ proxy serves no other concern than the profit of the investors

    These are greed machines and their ideal (and future) work force is robots, and their second favorite is slaves. After that, grossly overworked and underpaid semi-slaves. To contemplate social justice is simply not a luxury they have been afforded.

    This is why it is government’s job to prevent corporations (the strong) from exploiting the weak (the “poor”). The problem is not capitalism (unless comparing with a utopia) but rather **unbridled** capitalism.

    Capitalism makes a better servant than it does a master.

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