, Globe and Mail
In the 30 golden years after the Second World War, the labour market in
Canada generated a wage structure that provided sufficient well-paid jobs,
especially in industry, for workers with limited skills. Thousands of
factory workers were able to buy homes and educate their children, often
with a single salary. The result was an expanding middle class. After the
mid-1970s, however, the wage structure grew increasingly polarized. New
job creation has been concentrated mainly in highly skilled, professional
occupations, and the skill requirements for a broad sweep of occupations
have been increasing as new technologies have transformed the way work is
organized.
At the same time, globalizing markets have encouraged industries to
shift low-skill production to low-wage countries, while other low-skill
jobs have been replaced by technology. As a result, good opportunities for
low-skill workers in Canada are harder to find.
Families have adapted to this shift in several ways. They have sent
more family members into the labour force, with wives taking jobs to fill
the earnings gap, and high-school and college-age children working to meet
some of their living and education costs. Younger generations have adapted
to this trend by staying in school longer and investing more in their own
education.
Despite these individual and family efforts, Canada faces the
consequences of having large numbers of workers trapped in a low-wage
"ghetto," earning less than $10 an hour.
For example, Canada is an aging society with fertility rates well below
replacement rates, and baby boomers now approaching retirement. As the
labour supply begins to diminish in coming decades, we will be seeking to
ensure that each working-age adult is able to make his or her full
contribution to productive potential. At the same time, the larger
proportion of retired and aging people will have greater need for services
that now pay low wages -- household cleaning and maintenance, home-care
services, and a variety of social and health-care supports.
Canada does not have an official measure of poverty, and the matter has
generated significant debate. One might, as the Fraser Institute does,
define poverty as the capacity simply to meet the most basic needs for
food and shelter -- that is, to stay alive. An alternative is to define
poverty as being unable to participate in the mainstream because of
vulnerability and lack of income. The low-income cutoff (LICO) is the most
widely used measure to indicate vulnerability. It is the income level
where household needs for food, clothing and shelter, on average, take a
share of pre-tax income that is 20-per-cent higher than the average
family. The cutoff varies, depending on real circumstances.
A Nova Scotian, for example, working full-time for that province's
minimum wage of $5.80 an hour, would earn $12,100 a year. This would not
support an individual, let alone a family. It would take two full-time
jobs at this wage to support a family of three. In comparison, the cost of
living is much higher in a large city in Ontario, where the minimum wage
is $6.85 an hour. But there, too, one earner cannot support herself, and
would need two full-time jobs at this wage to support a family of
three.
Even these estimates are unrealistically generous. They assume that
people are paid for 52 weeks a year. The fact is that many low-paid
workers cannot find work for a full year. About one in three works
part-time, and another 29 per cent are in temporary jobs, which can be
seasonal, casual, or contract positions. About one in four low-paid
workers has multiple jobs in order to get more hours of pay.
Who are these two million low-wage earners? The conventional wisdom is
that the people who work for low pay are teenagers just starting out,
high-school dropouts without skills, second earners in the family, or
people who live alone without family responsibilities. The reality is much
more complicated.
Low-wage earners are overwhelmingly female, one-third are the only
earners in their families, and almost half are over the age of 35. Most
surprising, one-third have a postsecondary diploma or degree.
Sales and service occupations account for more than half of the
low-paid jobs in Canada. The predominant industries are retail trade,
accommodation, food, and related industries, manufacturing, and finance.
More than half of these workers (1.1 million) live in Ontario and
Quebec.
In the postwar period, it was not uncommon to see a young man graduate
from high school, take a job in a factory and earn a reasonably high
income in a unionized setting. Or he could take a white-collar job in a
bank, an accounting office, or a small business and, through learning on
the job, rise to a well-paid position. The skills required to advance in
the enterprise could be acquired in the workplace. Today, however, most
people who work in this job ghetto are hired for what they can do today,
not for what they might be able to do in 20 years. Employers offer few, if
any, job ladders to advance to well-paid jobs. And government programs
complicate rather than alleviate the situation.
Social-program reforms over the past two decades have been to encourage
people to move into employment, rather than to receive income support.
This saves money by reducing the direct cost of income transfers, reducing
eligibility for subsidies with respect to child care, housing, and
supplementary health benefits, and producing higher tax revenues.
However, the design of these programs also restricts the upward
mobility of the working poor.
For example, suppose a worker makes an extra $100 a week. She will then
owe about $20 in income tax, her assistance in housing will be reduced by
$25 and in child care by another $25. She will actually "take home" only
$30. Her marginal tax rate, in effect, is 70 per cent, a considerable
deterrent to advancement.
Similarly, the cost of child care, $1,000 a month on average in
Ontario, is a major obstacle to many second parents entering the work
force.
Even government training programs, intended to upgrade the work force,
are usually restricted to people who are unemployed. A low-paid
worker, therefore, faces high barriers to acquire new skills.
In effect, the policy cards are stacked against exit from low-paid
work.
How can we fix this? How can we improve the lot of our low-paid workers
and improve our national productivity? Five different approaches
are reviewed here.
Earned Income Tax Credit: This U.S. program is designed to increase
the rewards of work for low-income families with children, and those
without children who earn less than $10,000 a year. It costs American
taxpayers about $30-billion a year.
A taxpayer who is eligible receives a lump-sum payment that can range
from $2,271 for families with two children to $3,756 for those with three
or more children. When the family's earned income exceeds $12,260, the
credit is phased out at a rate of 19 cents for each dollar earned.
The credit was paid to more than 18 million families in 2000, lifting
almost five million of them out of poverty. Evaluations show that families
use the tax credit mainly for strategic investments, including education,
moving out of bad neighbourhoods, and major car repairs. The poorest
families also use it to meet immediate needs, such as paying rent.
Canada Child Tax Benefit: A refundable tax credit, this is
available to families whether their income is from employment, social
assistance or child maintenance from a non-custodial parent. Under the
program, families with income less than $22,400 will be eligible for
$2,440 per child. The benefit is reduced as income rises, so that by an
income of $32,000, the benefit is $1,150 per child. It then diminishes
more slowly and disappears when income reaches $77,000.
In 2000-2001, the CCTB and its low-income supplement transferred
$6-billion to low-income families; 75 per cent of that amount went to
one-earner and single-parent families.
Wage supplements: These have been the subject of experiments in
Canada by Human Resources Development Canada in collaboration with the
governments of British Columbia and New Brunswick. They were targeted to
lone parents with children who had been on social assistance for a year or
more, if they would leave social assistance and work full-time. The
supplement was designed to add from $3,000 to $7,000 to the family's
earned income for up to three years.
Participants reported higher incomes (a combination of earnings and the
supplement), more employment and gains in well-being, even though the
supplement did not increase the net costs of the governments, as the
supplements were fully financed by the combination of savings on
social-assistance payments and higher income and payroll tax
revenues.
Living wage requirements: This U.S. approach puts the onus on the
private sector to pay reasonable wages if employers wish to bid on
government contracts. Such requirements have been enacted by local
governments in Baltimore, Md., and in several California cities. This
means, for example, paying a wage sufficient to support a family of four
at or above the poverty line.
While the employer must carry the cost of the living wage, preliminary
evaluations indicate that the net cost to the employer may be neutral, as
the higher wage bill is outweighed by efficiency gains -- reduced labour
turnover and increased work intensity. In Baltimore, the cost of the 26
contracts let under these arrangements rose by only 1.2 per cent per year
during the period studied, less than the rate of inflation.
The impact on the workers, however, has been significant. In Baltimore,
the hourly wage paid by the contractors rose 35 per cent from $4.94 to
$6.66 an hour. Interviews with workers also revealed a greater sense of
responsibility and a higher sense of self-worth.
Individual development accounts: Another U.S. experiment, this is
designed to encourage people to save by offering to match deposits, on
condition that the savings are used for certain activities such as
education, home ownership, etc.
Participants saved an average of $25 per month, and the deposits were
matched at a rate of 2:1. Thus, the average grant per person was $600 a
year. While some participants dropped out of the program, most were able
to come up with the savings -- the majority by changing their consumption
patterns; 30 per cent worked more hours; and 7 per cent borrowed from
friends.
There is evidence that wage supplements, the living wage, and the
individual development accounts can have significant positive effects.
People feel better about their lives, they are encouraged to work and
save, they begin to plan for the future -- their own and their children's.
By far the majority uses the extra income to improve the family's standard
of living.
In the short run, Canada is devoting much of its potential talent to
low-paid work. Some of that work is essential to economic growth and
efficiency -- from grocery clerks to hotel cleaners -- while other work is
essential to meet Canada's social objectives -- child-care workers and
support workers for the frail -- and to free up others so they can perform
the work they have been trained to do.
What is that work worth? And who should be paying the cost? That is the
question for our age.
Judith Maxwell is president of Canadian
Policy Research Networks. This article is adapted from a paper being
presented today in Ottawa at the TD Forum on Canada's Standard of
Living.
