Social Justice and the Economics of the Minimum Wage
There has been ample media coverage of the well-deserved award of the Nobel Prize in Economics to Canadian David Card, in part for his work on the impacts of the minimum wage. As Andrew Coyne noted in the Globe and Mail, however, Card's work requires interpretation.
Card studied the impacts on employment of a small minimum wage increase in New Jersey in 1992 compared to adjacent Pennsylvania which did not raise its comparable low minimum wage. The key finding was that there was no negative impact on minimum wage jobs in New Jersey, contrary to the mainstream economic orthodoxy of the day.
Many subsequent studies have confirmed that modest increases in the minimum wage from low levels indeed have little or no impact on jobs. The most plausible explanation is that, left to their own devices, employers set the wage at too low a level. A wage increase can pay for itself by reducing very high turnover in low-paid jobs and associated recruitment and training costs.
Further, employers can respond to a minimum wage increase by accepting a somewhat lower profit margin, or by raising prices, rather than by cutting jobs.
Some thirty years after Card's study, economists take a much more nuanced view of minimum wages.
It has come to be recognized that higher minimum wages can be a significant tool to raise productivity, defined as the value of output per hour worked. Higher productivity can justify higher wages, increasing the quality of jobs.
Imagine you are in a minimum wage job paying $10 per hour and that you work 30 hours per week, earning a total of $300. If the minimum wage is hiked by $1 per hour, your earnings would rise to $330.
Suppose the employer responds by investing in new machinery and training to raise output per hour, and cuts hours from 30 to 28. In that case, the worker still gets a pay increase, from $300 to $308, and gains two hours of time to work elsewhere.
At the economy-wide level, higher productivity can mean fewer low-wage jobs without causing high unemployment.
In the Scandinavian countries, about 10% of all workers are in low-paid jobs, defined as earning less than two-thirds of the national median wage, compared to 20% in Canada. Unions and labour market policies such as high minimum wages can set a high wage floor without raising unemployment. Workers in low-wage sectors like fast food and hotels earn much more per hour than in Canada.
Our goal should be decent wages for all workers. The way to get there is to push for higher productivity in low-wage sectors by raising wages while maintaining full employment. That is precisely the formula pioneered by Sweden which remains relevant today.
The 2021 Federal Election and the State of Social Democracy in Canada
On the face of it, the 2021 federal election changed very little. The party standings remain almost the same, and Prime Minister Trudeau failed in what turned out to be an ill-advised bid to gain a majority.Read more
Agenda for an Election
This federal election must be about building a better Canada after the pandemic. The Broadbent Institute has set out a social democratic perspective to influence the political debate.
The crisis we and the world continue to confront seriously affects public health and our social and economic well-being. The pandemic starkly revealed major cracks in the foundations of our society and economy, which must be seriously addressed. On top of the public health crisis, which is still very much with us, we have to contend with long-standing problems that COVID-19 not only made more visible but also exacerbated.
There will be no quick return to normal, nor should there be.
The rise of precarious jobs and growing economic and social inequality revealed that the high unemployment experienced during the shutdowns was unequally shared across the workforce and that unless we take significant action to rectify the root causes, the recovery will also be unequal. Any recovery plan would be short-sighted and ineffective if it did not repair the foundational inequities in our society and address the crisis of climate change. This is a moment for social democrats to fight for fundamental reform.
We must, in overlapping phases, defeat the virus and protect health; provide relief and support for as long as necessary; and develop a plan for long-term social and economic transformation based on the lessons we have learned from the pandemic.
The status quo has worked well for the top 1% of Canadians, who now receive almost 15% of all household income and own 25% of all wealth, and even more for the top 0.1%, who are Canada’s billionaires. But it was not working for the great majority of Canadians who have experienced stagnant wages and living standards, rising household debt, and increased economic insecurity due to less stable jobs combined with cuts to income support programs.
Those consigned to the growing ranks of low-wage and precarious workers are increasingly excluded from the social mainstream, and this gap is highly gendered and racialized. The health costs of the pandemic were heavily and disproportionately experienced by women and racialized workers in essential jobs involving close contact with the public, while many of the better-off could isolate themselves by not working or working at home.
Far too many Indigenous people remained and still remain on the margins of the economy and struggle for recognition of their fundamental rights and ownership of land and resources. At the same time, they are fighting the devastating impact of the pandemic in their communities.
“Normal” was not seriously tackling the climate crisis. Even in the midst of the pandemic, we saw nature out of control: almost unprecedented floods, droughts, hurricanes, extreme heat waves, and rising sea levels. The recent report from the Intergovernmental Panel on Climate Change has confirmed our worst fears that these events are now indeed normal and bound to become more common. Canada has formally committed to dealing with the climate crisis through the Paris Accord but has made pitiful real progress in terms of actually reducing greenhouse gas emissions and transitioning from the old to the green economy. Many irresponsible business and political “leaders” remain wedded to a carbon-intensive economic model while pretending that serious action can be further delayed.
The crisis has revealed huge gaps in our social programs. The lack of eligibility for existing income supports such as Employment Insurance (EI) for many of the newly unemployed left the government scrambling to come up with new programs on the fly. Crowded, understaffed, and under-regulated long-term care homes led to a wave of unnecessary deaths among seniors. The lack of paid sick leave for many resulted in workplace COVID outbreaks as workers felt obliged to go to work even when they were ill. Parents with young children faced impossible choices as schools closed and no options were available for affordable child care.
Our current crisis is the result of 40 years of extremist “neoliberalism”—the belief in so-called free markets and private control of almost all of the economy. Our failing economic system has entrenched economic inequality and racism, bred right-wing populism, and damaged democracy.
Publicly-led innovation for equitable social benefits
Our solutions lie in a mixed public/private/not-for-profit social economy with high levels of public provision to meet key needs, protection against poverty and insecurity, and effective public-interest driven regulation of banks and large corporations. The market and the private sector are important tools, but governments must shape the economy to secure fair and inclusive society.
We need to renew the capacity of governments to shape the economy in the national and public interest, to lead innovation toward a shared vision of the equitable future, to distribute resources in order to achieve more just outcomes, and to increase the bargaining power of workers vis-à-vis employers.
As in the aftermath of the Great Depression, now is the time for federal leadership. The federal government alone has the fiscal capacity to make major new investments in social programs, due to its relatively low debt, its access to all major sources of tax revenue, and its special relationship to the Bank of Canada. The times call for new national programs in health care, education, housing, and income support programs.
The immediate priorities should be child care and early learning and the expansion of public health care from physician and hospital care to long-term care, pharmacare, and mental health.
A green and just economy
The transition to a clean, green economy must be driven not only by taxes, but also through regulations (e.g., strict building codes, clean fuel standards, and a shift to zero-emission vehicles). In addition, major public investments need to be made in clean energy, greater energy efficiency, stripping out carbon from production and consumption, and building new infrastructure such as mass public transit and charging stations for electric vehicles. All of these will promote environmental remediation.
Rather than relying on private finance alone to support the new clean economy, these kinds of investments could be increased and scaled up by establishing a new Green Investment Bank mandated to fund clean, green investments at low cost, including through equity stakes and low-interest loans to enterprises.
A just transition is essential to ensure that workers will not suffer because of the economic restructuring that will be required. This would be possible, since the clean economy would be much more labour-intensive than the current highly capital-intensive, extractive economy.
Displaced workers should be guaranteed a comparable job or income compensation through wage tops, and they should be offered the opportunity to retrain.
Centering care and decent work in the economy
The caring economy, though rarely discussed until recently, has long been the backbone of our social and economic well-being. Not only is it a foundational aspect of a meaningful post-pandemic recovery; it also holds the keys of our future resilience in the face of crises to come. Health care, education, child and elder care, and social services are the key pillars of the caring economy. They meet a multitude of social needs while providing a great many jobs, especially for women and racialized Canadians, and they rely on leadership and investment from governments to work.
We need to start fixing the labour market through key changes to labour law and employment standards to promote more secure and better-paid jobs.
Governments should facilitate and encourage collective bargaining and enhance minimum wages to establish a wage floor that provides workers with a livable income. Sectoral, multi-employer bargaining in private and public services can set a decent floor of wages and standards without putting any one employer at a competitive disadvantage.
Canada's inadequate income-security safety net was unable to stand the test of the pandemic as many unemployed workers and independent workers found that they did not qualify for EI or social assistance and faced immediate destitution.
In the longer term, Canada should move toward a Basic Income Guarantee. We need a bold vision for income security reform but also a thoughtful plan to do better building on what exists and already works, as outlined in our paper Basic Income Guarantee: A Social Democratic Framework.
Making sure everyone pays their fair share
As noted in our report Paying for the Recovery We Want, expanding public and social services will have to be financed in medium and long-term through higher taxes. We cannot build a social democratic Canada without collectively paying for it, and that should be through a transparent tax system based on ability to pay. A precondition for political support of higher levels of public spending is public confidence that the costs are being fairly allocated.
Over the past few decades, the tax burden on the richest and highest-income Canadians has been cut by:
- The reduction of the corporate tax rate, which boosts after-tax returns to equity owners
- The increase or tolerance of special tax breaks being applied to income deriving from capital, such as capital gains and stock options
- The reduction of the progressivity of the personal income tax system
- A decrease in top income tax rates; and by tolerance of the growing use of offshore tax shelters by corporations and the wealthy.
The equalizing impact of progressive taxes has been eroded, compounding the growing inequality of market income and starving the public and social sectors of needed resources.
The aim of a progressive tax system is not just to finance social programs and public services that benefit all citizens, but also to reduce very large and growing inequalities of income and wealth.
Introducing a wealth tax, closing tax loopholes largely used to hoard wealth with little productive purpose, taxing excess profits made by large corporations during the pandemic are measures supported by 9 in 10 Canadians. There is also broad support on increasing corporate income taxes as well as those in the top tax bracket.
This election may very well be the most important of this century. The government that is elected will be charged with setting the ground for our post-pandemic era in Canada. This is a time to boldly restructure our economy and our society in order to overcome the deep inequality and climate change that threatens our world.
We live in perilous times. The pandemic reminds us of the need for collective action to achieve the common good. While it remains to be seen how well Canada will fare in comparison to other countries in terms of its management of the pandemic, the crisis has starkly spotlighted long-standing cracks in our social and economic foundations.
Early Federal Election? A Risky Proposition
The political pundits and the media are all but unanimous that there will be a fall federal election. They are probably right, but they may be underestimating the risk to the governing Liberals.Read more
An Insider's Reflection on Ed Broadbent's Social Democratic NDP
I left British Columbia in 1984 to join my wife, Karen, who had taken a job with the Macdonald Commission and was to go on to pursue a career as a senior public servant. I did so somewhat reluctantly, since I had supported the recently successful British Columbia NDP leadership bid of my good friend Bob Skelly, who was at least as much an environmentalist as a committed socialist. Bob, leader of the opposition from 1984 to 1987, proved to be something of a disaster as NDP leader, making a hash of the campaign opening and presiding over a serious loss of electoral ground. From this experience, I learned that leaders need solid leadership and political skills, and not just good ideas. In Ottawa, I resumed work on my thesis for a few weeks until I was hired by the federal NDP caucus, which was then led by Ed Broadbent. In the 1984 election, the Conservatives led by Brian Mulroney swept to power with a record majority, but the NDP won a respectable thirty seats, just ten seats behind John Turner’s chastened Liberals. I worked, mainly on economic and tax issues, as part of the research team that served the leader and the caucus as a whole. There were a good dozen of us in those days, when parties still valued research over communications in the allocation of resources. (With a similarly sized caucus after 2015, the federal NDP had virtually no research capacity.)
Our work centred on critiques of the budget and the government’s legislative agenda, which was dominated by tax reform and spending cuts to address the deteriorating federal debt and deficit situation. Truth to be told, the Conservatives wielded the axe a lot less forcefully than the Liberals of Jean Chrétien would a decade later, trimming rather than slashing transfers to the provinces, largely ducking cuts to unemployment insurance, and refraining from a frontal attack on labour. The target of a balanced budget was annually postponed.
The issues of unemployment and growing insecure and precarious employment dominated political debate. The national unemployment rate hit double-digit levels from 1982 through 1984, and fell only slowly afterwards as the high interest rates imposed to tame inflation gradually returned to more normal levels. The right attributed the deficit and debt problem to supposedly excessive spending, while the left attributed it to slow growth, excessively high interest rates, and the erosion of the federal tax base. Many prominent academic economists—such as Lars Osberg, Pierre Fortin, and Tom Courchene, all at one time presidents of the Canadian Economics Association—argued that the shift to a much tighter monetary policy to fight inflation was indeed the major culprit for high unemployment and soaring public debt. I came to know and work closely with Ed, whom I now count as a close personal friend. We had regular lunches after both of us left the Hill, and I have had the privilege of working closely with him in the launching of the Broadbent Institute in 2012. Karen and I remember some wonderful meals with Ed and his wife Lucille at their large home in Sandy Hill, where we also lived. Lucille Broadbent passed away in 2007; we still use her recipe for cannelloni. When I was on the research staff, directed by George Nakitsas under chief of staff Bill Knight, I had quite close contact with Ed, frequently meeting in his office before question period or debates on various pieces of legislation.
Ed Broadbent somehow manages to be simultaneously a tough partisan and a genial intellectual of high principle, politically pugnacious, and a deep thinker who respects conservative and liberal ideas and principles. In both capacities, Ed wanted to supplant the Liberals as the dominant party of the centre left, and very much saw himself, not as a “Liberal in a hurry,” as the old adage goes, but rather as an intellectually grounded democratic socialist. He admired and was friends with leading European socialists of the period such as Willy Brandt in Germany, Joop den Uyl in the Netherlands, and Olof Palme in Sweden, whom he came to know through the Socialist International. As Christo Aivalis has argued at length in his fine book The Constant Liberal, the federal NDP caucus had remained ideologically distinct from the Liberals through the Pierre Trudeau years, during which Ed was a member of Parliament and then, from 1975, party leader. Much later in life, Ed toured Europe debating social democracy versus Marxism with his old friend and soon-to-be-wife Ellen Wood, one of the most distinguished left political theorists of our times.
Political scientists David Laycock and Lynda Erickson judge in their 2015 book Reviving Social Democracy: The Near Death and Surprising Rise of the Federal NDP that “under Broadbent’s leadership, the party continued to articulate a core social democratic conception of equality that was deeply implicated in its vision of democracy. The broad objective was a more egalitarian distribution of opportunities and resources to benefit both ‘ordinary Canadians’ and a wider range of previously disadvantaged groups, particularly women but also ethno-cultural minorities and aboriginal peoples.” Ed and the NDP were instrumental in ensuring that women’s and Aboriginal rights were recognized as part of the repatriation of the Constitution.
The NDP pushed the Liberals to embrace policies of economic nationalism in the 1970s and into the 1980s, especially when Trudeau’s government was in a minority from 1972 to 1974.
The federal Liberals in the 1970s regulated foreign ownership with a view to reducing high levels of US corporate control in the manufacturing and resource sectors; regulated the development of the oil and gas sector in the national interest through the National Energy Program; and modestly expanded public ownership, including through the establishment of Petro-Canada in the oil industry. In defining what it means to be social democrat and not just a liberal, Broadbent placed a lot of emphasis on policy development, and I was closely involved with member of Parliament Steven Langdon (an economist and former student activist), George Nakitsas, and Judy Randall in two caucus action groups, one on jobs and more broadly economic policy, and one on fair taxes. Both groups travelled the country, consulted widely with experts, and produced reports in 1987 on the need for much more government intervention in the economy and setting forth the case for redistributive tax reform with an emphasis on higher taxes for profitable corporations and the very affluent. Over this period, the federal NDP was, however, somewhat sidelined in economic pol- icy debates by a failure to take a definitive position on the deficit and debt situation. In the context of a very open economy with a strong propensity to import, a simplistic Keynesian view that the deficit should not be of great concern, given a lot of slack in the economy, was seen as increasingly problematic.
One lesson many on the left as well as the right drew from the retreat to austerity of the French Socialist (Parti Socialiste de France) government of François Mitterrand was that “Keynesianism in one country” was no longer possible. Economists had no clear answer as to how fiscal and monetary policy should address the stagflation of the 1970s, though most came to place the priority on low inflation. From a right-wing perspective, deficits and debt were bad, and many in the NDP cited Tommy Douglas to that effect, while forgetting that the ability of the federal government to finance deficits is much greater than that of the provinces. From a left perspective, high deficits were the result of high unemployment, and should be responded to not only through macroeconomic policies of stimulus, but also through more direct industrial and trade policy measures to boost private investment. That was the core message of Ed’s Hamilton speech on the deficit in 1982, drafted by Jim Laxer. This caused a storm of controversy, since it was wrongly seen by both the media and many NDP activists as a step to the right rather than an attempt to rethink how to obtain full employment in a changing economy.
I got to know some serious socialists in the NDP caucus, such as Steven Langdon from Windsor (assisted at the time by my friend and later CCPA executive director Bruce Campbell), the Reverend Dan Heap from Toronto, the fiery John Rodriguez from Sudbury, Bill Blaikie from Winnipeg, who embodied the social gospel tradition of the CCF, and Jim Fulton from Skeena, who was also a strong environmentalist. Famed for slapping a whole salmon on his desk in the House during question period, Jim went on to run the David Suzuki Foundation. Svend Robinson was a gadfly who was a voice of the extraparliamentary left, though some of his colleagues considered him to be a bit of a prima donna. Margaret Mitchell of Vancouver East was a strong voice in Parliament for feminist socialists.
I attended most caucus meetings, and was often struck by the high quality of debate. I recall Ed making the point quite strongly that the party should take positions on issues based on social democratic principles, rather than mindlessly oppose every government initiative or just seize on and chase the media issue of the day. Ed was feisty and combative in the House of Commons at a time when we got almost daily coverage in the national media. I recall staying up late (too late) with Ed for an emergency debate on foreign trawlers operating in Canadian waters, followed the next morning by headlines about “Gunboat Ed” who had called. for sending in the navy. His principal secretary, Bill Knight, was not amused.
Ed’s strategy was to win over progressive liberal voters by standing definitively to the left of the Liberal party. Ed’s cardinal rule was, and remains, to never be outflanked on the left, an unfortunate truth that was unfortunately never learned by Tom Mulcair, who, in my humble opinion, will be remembered as a Liberal interloper.Read more
Time for Serious Corporate Tax Reform
United States President Joe Biden is serious about corporate tax reform. His administration proposes a big hike in the US corporate tax rate from 21% to 28%, closing down many tax loopholes and avoidance strategies, and establishing a global minimum corporate tax rate of 21% which would apply in all countries.Read more
Mark Carney and the Limits of Liberalism
Mark Carney is the ultimate Davos man. A former investment banker with Goldman Sachs, he moved from the federal Department of Finance to become Governor of the Bank of Canada (2008 – 13) where he helped handle the fall out from the global financial crisis. He was then tapped to be head of the Bank of England (2013-20) and played a prominent international role in reforming global finance.
Is Inflation a Threat?
Many conservative economists and policy-makers, not least the C D Howe Institute and its corporate allies, are sounding the alarm about potential inflation in the opinion pages of the Globe and Mail and the National Post.
Wage Repression, Inequality and Economic Stagnation
Towards a Just Recovery
The Fall Economic Statement released yesterday is necessarily shaped by a high degree of uncertainty. Despite promising reports that we may have an effective vaccine against Covid-19 within months, the pandemic is very much with us and economic recovery is far from certain as quarantines and lockdowns continue.Read more