What does “living” mean in a Living Wage?

The Edmonton Social Planning Council just published research that indicates the living wage in Edmonton should be $17.36 per hour for a two-parent family with young children and both parents working 35 hours per week. The monthly budget prepared for this sample family assumes both workers are making $17.36 per hour.

Before going further, setting a living wage is a complex undertaking. No matter what number the Council came up with, people can quibble. It’s easier to pick at the budget the Council did for the family or point at suppositions that unduly biased the formation of a recommended number.

There are two major qualifiers to the recommended living wage. First, the monthoneofthekeyly budget for this family is a “conservative estimate,” according the Council. I agree but add that sometimes there are budget lines that seem to be more barebones than conservative (e.g. health and dental costs, school fees, to name two). Also, as the report notes, certain expenses were not included in the development of the family’s budget: debt payments, savings for the children’s education, retirement savings, any type of vacation (no matter how frugal), and it seems very little to support family recreational activities.

One might quibble about recreational expenses being included, although one of the fundamental principles of setting a living wage is to factor in the costs of “belonging” or what jargon-heads like me call “social inclusion.”

That said, how realistic is it to assume people who need a living wage have no debt and why would saving for retirement or for the education of children be viewed as unessential to “living?”

My remarks are not criticisms of the Council’s research, which as usual, is very well done. The authors used respected sources and produced a living wage recommendation based on accepted methods of doing so. By being consistent with how other provinces and cities are determining their living wages, the Council is able to provide a local version of a living wage based on best practice.

However, I am questioning the presuppositions of the research that allow best practice to ignore debt, education for children, and retirement as legitimate “living” expenses. Sometimes I wonder if we actually see a living wage through a welfare lens. That lens would have us ensure that recipients of welfare type programs don’t live large off the public purse. Typically that sentiment results in income security benefits being too low and in some cases so low the benefit is more akin to punishment than resembling anything close to “security.”

A living wage is not a welfare program. It should be based on what it costs to live a reasonable quality of life. A living wage should allow parents to invest in the future of their children. If people don’t save for retirement, they will cost society more later on. Shouldn’t a living wage be about now and tomorrow?

The other big question we may wish to consider is this: the recommended $17.36 per hour living wage is actually a subsidized living wage for a family of four. That family would require $1,100 per month in government transfer payments and child care subsidies to break even each month. To pay their own way completely, these two parents would have to average roughly $21.00 per hour each to live without any subsidies or transfers.

Oh yes, the question: which is the real living wage? $17.36? Or $21.00?

The lower of the two wages results in the family costing the “system” $13,000 plus per year. At $21.00 they would be paying taxes of about $10,000. That’s quite the turn around.

I am a proponent of government transfer payments and subsidies for child care, but believing these are needed programs does not mean we shouldn’t wonder about when they should and should not be deployed. It can’t just be carte blanche and on the flip side the answer isn’t to abolish them. Also, we should look into who benefits from the transfers and subsidies. I suggest it is not only the two parents in the above example.

Let’s face it. The living wage “debate” is contentious. Businesses that pay low wages are generally against raising the minimum wage in Alberta to $15.00, much less consider paying a true living wage. One argument is that businesses will have to raise prices to maintain their operations and that consumers will have to pay for the increase anyway or that jobs will be lost.

Another argument is that low costs drive profits which fuel the economy and benefit everyone. It’s one of the most common arguments for maintaining poverty wages. I have to say the argument looks good on paper, but lacks sufficient proof to become an incontrovertible economic principle.

There is a host of data that indicates the economy is working far better for those already making good incomes and hardly at all for the majority of citizens. I think it is reasonable to expect the economy to work for the majority; that doesn’t mean we all make the same thing. But consider the following data from the report or other sources:

  • Just over 100,000 Edmontonians are considered to be living in poverty, based on 2012 data.
  • Three in five of Alberta children living in poverty are from families in which one or both parents are working. That’s the highest rate in at least 20 years.
  • 20% of employed Edmontonians (124,000) earned less than $15 per hour in 2011.
  • Various studies indicate that approximately half of wage earners in Canada are living pay day to pay day and are vulnerable to losing their home if a disaster hit their families (Source: Canadian Payroll Association). In Edmonton, that would be up to 350,000 workers.

These four data points indicate that the economy is not benefiting the majority of citizens, but there is one more piece of data that further drives this home. As noted on page four of the report, “income inequality in Edmonton Census Metropolitan Area (CMA) is growing in line with provincial and national trends. Between 1982 and 2012, the bottom 50% of tax filers saw a 3.3% increase in their real median incomes compared to a 50% increase for the top 1% and a 137% increase for the top 0.1% of the population (Statistics Canada, 2014a).”

profoitsbynatureThere are many obstacles in the way of ending poverty, which means there is no single solution that we can all rally behind. We are fond of saying poverty is a complex problem and it’s true, but complex problems ride on top of diverse perspectives, values, and biases. Agreeing that the problem is complex is fairly easy to do but agreeing on the complexity of solutions is quite another thing.

We end up in polarizing arguments across sectors that disallow sufficient transformational thinking while deepening the ideological divide among sectors, political parties, and community leaders.

Not all social problems are connected to economics, but most are. One of the basic economic principles I think we should talk about is that the economy should work for the majority. If it doesn’t – and admittedly that’s my assessment – then don’t we need to look at how our economy is structured, how workers are treated, and how we can also grow profits to fuel growth and equitable benefits for everyone?

As mentioned before, the proposed living wage of $17.36 is actually a subsidized living wage. It’s easy to identify how the government transfer payments and child care subsidies help families make ends meet. But don’t the subsidy/transfer arrangements also benefit employers and in particular businesses that earn big profits?

I saw a tweet a bit ago from a business leader who said something like “businesses set prices to achieve the highest ROI.” If that’s a fundamental position of business leaders, then wages become a cost centre more than an investment in people and the general feeling about costs is to keep them as low as possible.

And if the desire for the highest ROI means that wages are kept so low to help produce higher and higher profits, don’t the subsidies received by our two parent family also subsidize the costs of business operations?

I understand that many businesses cannot pay a $21 per hour living wage. No doubt some would go out of business; others would scrape by instead of producing a reasonable profit. Special interest groups like Chambers of Commerce will say it isn’t fair to do that to businesses.

But… is it fair that tax payers pick up the difference?

Again, many of the same special interest groups decry raising taxes, especially corporate taxes.

These two positions seem incongruent to me. In an economy that is growing wealth for the wealthy and relying on subsidies and transfer payments to top up wages that are inadequate for workers to live on, who is supposed to pay for that?

One of the key questions in the living wage debate should be at what point are tax payers subsidizing insufficient wages paid by profitable businesses? And once we understand what that point is, how do we feel about that?

There is a lot of data that indicates a strong correlation between social and health problems and the growing income gap across the world and in our country. Generally speaking the greater the divide the more we see persons of low income imprisoned. Health problems, including mental health issues, increase as does social isolation. None of these things are good for the economy, are they?

If our community is serious about ending poverty – and I do believe a growing number of people across all sectors are serious about it — we won’t accomplish this noble goal without questioning and changing our perceptions and values around terms like “healthy economy,” “profits,” and “return on investment.”

The challenge is not to create equal income across the population. There will always be those who benefit more from the economy than others. In fact, we need income variances in order to fuel economic growth. The more risk one takes, the higher the rewards should be. The question is how far is too far in terms of the growing income gap in our country and across the globe?

What do we believe an economy should look like that has equitable benefits to all citizens?

I have worked for years in the human services sector and my primary focus has been on serving the poor and the homeless. On occasion over the course of my career I have experienced people who point to food bank users driving away with their hamper in a late model vehicle. Some tell stories of people on welfare driving the proverbial Cadillac. These stories are invariably used to demonstrate that the poor are not really poor and worse, they are something akin to a gold digger.

The inference is tax payers shouldn’t have to subsidize that kind of expenditure. And to be honest I agree with them, though their outrage is sourced in a very, very small minority of “poor” people.

whatdowebelieveThere is a flip side to such simplistic analysis. Why is it we don’t wonder why tax payers should subsidize workers so that CEOs and business owners can pay workers the minimum possible while driving their Mercedes to their mountain cabin?

Please understand I am not pitching that the for-profit sector is nefarious or driven primarily by greed or a lack of concern for employees. But I am trying to offer some balance to many voices that cite gloom and doom at a $15 per hour minimum wage, which I assume will only resound much louder at the living wage proposal of $17.36.

Poverty is not just a social problem or the result of personal defects. It is very much an economic problem and if we don’t address that in significant ways, let’s stop thinking we can end poverty through more collaboration and collective impact initiatives and leave the economy as it is.

But also let’s stop thinking that an economy that increasingly benefits a few will be sustainable. There is a tipping point and I think we all would be better served to avoid it.

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