It’s no secret that Western countries continue to lambast income inequality and promote higher wages. Numerous municipalities in Canada and the United States are considering legislation that would implement supposed living wage laws, but a new report from a leading think-tank in the Great White North says not so fast.
The Frasier Institute, an independent, non-partisan policy group, published its new report Tuesday titled “The Economic Effects of Living Wage Laws” in which it concludes that such wages can hurt the most vulnerable workers in society, such as the unskilled, uneducated, immigrants and perhaps even the elderly.
Living wage laws are different from minimum wage laws because the objective is to protect a certain sect of workers.
According to the organization, it studied data from more than 140 municipalities in the United States where living wages have been adopted. Its scholarly research discovered negative trends in terms of employment, wages and poverty. Indeed, higher wages might benefit some, but researchers argue it comes at the expense of those less fortunate and could reduce overall employment opportunities.
In 2011, British Columbia’s New Westminster became the first and only Canadian city to impose a $19.62 living wage, nearly double that of the $10.25 provincial minimum wage. Activists made the claim that such laws benefit the poor, but research finds it increases unemployment among low-wage workers by between 12 and 17 percent.
The reason why the jobless rate increases is because if companies are forced to pay a higher wage for unskilled, uneducated workers then businesses will perform a variety of tasks to remain competitive and boost revenues and profits: cut back on jobs, slash hours, reduce on-the-job training and seek out workers that are highly qualified.
“Less-skilled workers are presumably among the very people living wage laws are supposed to help, but the evidence suggests these laws particularly hurt less-skilled, lower paid workers,” said Charles Lammam, study author and resident scholar in economic policy at the Fraser Institute, in a statement. “Living wage laws often don’t help the most poverty-ridden families, in part, because the overwhelming proportion of those benefitting from living wage laws tends not to be poor.”
The study found that in seven U.S. cities there were 72 percent of workers that benefitted from living wage laws but they were not poor. Also, for those who were deemed impoverished, only about one-third moved above the poverty line.
The report added that any sort of cost of living wage laws can actually be passed onto taxpayers too.
“With higher labour costs for city contractors, there is the potential for living wage laws to result in larger city budgets and higher municipal taxes,” Lammam added.