Vancouver’s ‘living wage’ will likely increase costs without helping the most vulnerable workers

Earlier this week, Vancouver city councillors approved a plan for the city to become a so-called “living wage employer.” Unfortunately, this policy, once implemented, will likely increase costs for city taxpayers without helping vulnerable workers (activist rhetoric notwithstanding).

First, some background. According to an internal 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 currently 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 (we’ll leave a critical analysis for another time), a few key points are worth mentioning about the policy’s scope.

All City of Vancouver employees are currently paid at or above the CCPA’s living wage rate. So for direct city employees, the policy is really about providing a floor for future compensation. In addition, most city contract workers covered by the new policy also receive more than the CCPA’s living wage, according to the city’s report.

But there are some contract workers (in security, janitorial, and graffiti removal services) with compensation below $20.64 per hour. According to the city’s estimate, bringing these contract workers up to the current living wage rate will cost $590,000 annually. For perspective, that’s equivalent to 2.5 per cent 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 ultimately 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. None of this should surprise those familiar with the research on minimum wages. When governments mandate a wage above the prevailing market rate, employers respond by cutting back on jobs, hours and on-the-job training. Less-skilled workers—those with fewer qualifications and experience—are collateral damage.

Yet activists tend to overlook these consequences. In reality, while some workers may benefit from a higher wage, their gain comes at the expense of others who lose employment opportunities. The 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 highly perverse outcome since less-skilled workers are presumably among the very people the policy intends help. If employers keep or hire more productive workers, who would have been paid a higher wage anyways, 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 per cent) were not initially poor.

While the idea of a living wage policy may sound nice in theory, it will do little to help Vancouver’s most vulnerable workers. It also has the potential to increase municipal costs, which will be paid for by taxpayers.