By Charles Lammam
and Hugh MacIntyre
The Fraser Institute
The City of Vancouver’s plan to become a living wage employer will likely be a costly failure.
Vancouver city council voted recently to make the city a living wage employer, and proponents claim this will help vulnerable workers.
But the unfortunate reality is that the implemented policy will likely increase costs for city taxpayers without helping those most in need.
According to a city report, the policy will “ensure that direct employees [of the city] and individuals employed by contracted service providers, including subcontractors, are compensated at or above the Living Wage rate.” The region’s living wage is pegged at $20.64 per hour, nearly twice the provincial minimum wage, based on calculations by the Canadian Centre for Policy Alternatives (CCPA).
The CCPA defines a living wage as “the amount needed for a family of four with two parents working full-time to pay for necessities, support the healthy development of their children, escape financial stress and participate in the social, civic and cultural lives of their communities.”
Taking their calculations at face value, a few key points are worth mentioning about the policy’s scope.
All direct city employees and most contract workers covered by the new policy are already paid at or above the CCPA’s living wage rate, according to the city’s report.
But some contract workers (in security, janitorial and graffiti removal services) are compensated below $20.64 per hour. The city estimates that bringing these workers up to the current living wage rate will cost $590,000 annually. That’s equivalent to 2.5 percent of the $23.4-million increase in annual property tax revenue for 2016.
If the city absorbs the higher labour costs of government and contracted workers, Vancouver’s living wage law will increase the cost of city services. That means higher municipal taxes or reduced spending on other services – a lose-lose scenario for city taxpayers.
Some taxpayers may be willing to accept more costly city services if the living wage policy effectively helped those most in need. But the best and most rigorously analyzed evidence shows otherwise.
Living wage laws tend to reduce employment opportunities for low-wage and low-skilled workers. This shouldn’t surprise those familiar with some research on minimum wages. When governments mandate a wage above the prevailing market rate, employers often respond by cutting back on jobs, hours and on-the-job training. Less-skilled workers – with fewer qualifications and experience – are collateral damage.
Yet proponents tend to overlook these consequences. In reality, while some workers will benefit from a higher wage, their gain comes at the expense of others who lose employment opportunities. Research finds employers respond to living wage laws by hiring more qualified workers to justify the artificial wage increase while passing over those with fewer skills.
This is a perverse outcome since less-skilled workers are presumably among the very people the policy is intended to help. If employers keep or hire more productive workers, who would have been paid a higher wage anyway, it defeats the purpose of adopting living wage laws in the first place.
And living wage laws often don’t effectively target poor families. In one study of seven major U.S. cities, researchers found that the overwhelming majority of living wage beneficiaries (nearly 75 percent) were not initially poor.
Rhetoric notwithstanding, Vancouver’s living wage will do little to assist vulnerable workers and will likely increase municipal costs, to the detriment of city taxpayers.
Charles Lammam is director of fiscal studies and Hugh MacIntyre is policy analyst at the Fraser Institute.