Many people like to argue that people should have a living wage to boost them out of poverty. It is clearly evident that poverty is a concern to many and that there needs to be a solution – which I do agree with. However, I do not believe that raising the minimum wage in itself is the solution. There are a few fundamental reasons for this.
- The minimum wage increase has actually killed jobs since people are going to want more experience from their workers to justify the higher wage. This could be one of the reasons it is becoming more and more difficult for people to get entry level jobs. Businesses would have to hire fewer people in order to maintain the same level of profit or sustainability year after year.
- It kills the incentive to work harder, why should people work harder when new staff are getting paid close to what the senior staff make (depending on industry of course).
- An increase in itself does not necessarily reduce poverty as it seems to be pushing the cost of products and services up since businesses have to find a way to be able to sustain the new wages plus ever increasing expenses when they have to pay for their materials and services as well (in most cases, these costs are passed on to the customer).
- The government is getting more tax dollars – just because a person makes more, does not mean that they get to keep more. The increase in wages just puts more people on the tax roll since benefits and credits have not been reflected by the change in wage. For example, if a person makes more, they contribute more to Canada Pension Plan (CPP), Employment Insurance (EI), and personal income tax.
I would actually like to propose a different idea – now that wages are around the $15.00 per hour mark, I guess we have to leave it as people have grown accustomed to it. Instead, I would propose something like this for example, instead of raising the minimum wage, raise the minimum tax exemption to around $25 000 both provincially and federally so that people are able to keep more for their basic needs. I would also raise the CPP exemption to around $12 500 from the $3 500 that has been the case for a long time. We know that most people make more than $3 500 a year. I believe this since CPP is just another tax of around 5.25% on people’s earnings over $3 500. I believe that CPP is okay, but that different things can be done to make more efficient use of it, Please refer to my post ” Canada Pension Plan: Should the Canadian Government be Responsible for Your Retirement? If Yes, There Has Got to Be a Better Way for further reading.
I believe that the above approach would work better than just hiking the minimum wage. Even with the increase of minimum wage or a different solution, some people may always be in poverty – which is no one’s fault but the individual. For example, smoking, drinking, and gambling may be some habits that are competing for valuable dollars versus one’s basic needs and the government knows it so that is why they choose to tax drinking and smoking (it is not the government’s business what people like to spend their money on nor should the rest of society have to pay needlessly for other people’s habits). As a result of this position, I believe that the government would be providing a helping hand rather than a hand out. Then again, I am not advocating an increase in minimum wage, but instead of a minimal amount that people can keep and do what they want with (hopefully keep themselves out of poverty). A side note: I am not advocating for a $25 000 basic income in terms of being entitled to this money without working for it, but money that a tax payer is entitled to keep if it is earned income. I personally believe that the type of solution that I propose would be the beginning of a permanent solution rather than just a band aid solution such as raising minimum wage without changing anything else.