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Author of the Frontier Centre for Public Policy report Why a 'Living Wage' Doesn't Kill Poverty

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Social policy is not typically given to mysteries. Yet, the curious success of the living wage in America prompts many questions and produces some puzzling contradictions. That this phenomenon could soon be popping up in Canada makes cracking the case all the more pressing.

Living wage policies establish municipal minimum wage rates for city employees and/or workers at businesses contracting with the city (janitors, for example). The goal is to ensure that full-time jobs produce incomes above the poverty line. Typically, living wages are 50 per cent or more above existing minimum wages.

The role of a living wage in reducing poverty is quite controversial, however. The number of workers affected tends to be very small. And there's no guarantee they were below the poverty line to begin with. So its effect on the working poor appears negligible. At the same time, it raises costs for businesses and taxpayers and may lead to significant distortions in the labour market.

Nonetheless, the idea has been wildly popular across metropolitan America. Starting in 1994 in Baltimore, as that city struggled with inner-city blight, the living wage has spread to include Detroit, New York, Boston, Los Angeles, Milwaukee and San Francisco. About 140 U.S. cities now have living wage policies.

Yet, despite all this success south of the border, no Canadian city has adopted a living wage. Calgary and Waterloo Region in Southwestern Ontario are the only municipalities currently considering it. This week, a Calgary city committee plans to vote on the idea.

So who are the advocates and why have they been so successful in the United States? More to the point, how did this idea thrive during the Bush years when political support for business interests supposedly ran unfettered? And why has Canada avoided the concept? Finally, how come Calgary and Waterloo Region?

One theory for the success of living wage campaigns is that they're driven by municipal unions keen to make contracting out more expensive. There is some logic to this. Studies have shown that cities with high union density are more likely to adopt living wages.

But, while unions are active behind the scenes, most of the real advocacy is done by citizens with nothing to gain. A living wage campaign at Harvard University was driven almost entirely by students, who stood to pay higher tuition if their cause was successful.

Richard Freeman, an economist at the U.S. National Bureau of Economic Research, has studied this illogical success of living wages. While the concept is clearly inefficient as a solution to poverty, he suggests its main appeal may lie in the local focus. "No one gets worked up about changes to the national tax code, although that can have a much bigger effect on poverty. But they will get worked up about the janitors on their floor." The movement, he says, has much in common with previous anti-establishment campaigns, such as those targeting sweatshops and fair-trade coffee.

As for the success of living wage campaigns during the Bush years, Mr. Freeman figures that activists concentrated their lobbying efforts on city halls because they knew they had little chance for success in Washington. The fight for a living wage was thus a symbolic one. It didn't matter if the policy had any real impact. At least it was a fight they could win.

This same logic may explain Canada's experience. With Liberal governments in Ottawa for many years, it made little sense for activists to concentrate on municipal politics. Now things are different.

But why Calgary and Waterloo Region? These are two of the wealthiest and most entrepreneurial centres in the country. While both may have some poverty, neither fits the profile of a battered 1994 Baltimore.

Again, it may be the symbolic value. By adopting living wage policies, Calgary and Waterloo Region can take figurative stands against poverty, even if the practical impact is insignificant. The living wage may thus become an affectation for well-to-do cities looking to show they're concerned about social issues. And in politics, looking like you care can be just as good as doing something useful.

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