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Economic Insight Why conservative governments ought to embrace a higher minimum wage

Few Canadian economic debates are as long-standing and as predictable as that over the pros and cons of raising the minimum wage.

Progressives call for a higher wage floor to combat inequality, low pay and poverty; employers and the political right generally argue that a decent minimum wage comes at the cost of jobs, and harms those it is intended to protect. But the political and policy debate, outside of Canada at least, has become much more nuanced and complicated.

We are moving closer to a consensus among experts and across parties of the left and right that minimum wages are an important part of the policy tool kit needed to fight poverty and growing income inequality.

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Consider that the July, 2015, budget of the just re-elected Conservative government in Britain announced a boost to that country's minimum wage by 40 per cent by 2020. The chancellor said that "Britain needs a pay rise" and argued that employers have a responsibility to pay "a living wage," which will help reduce the growing ranks of the working poor.

And consider that Germany, where the conservative Christian Democrats are the senior coalition partner, introduced a national minimum wage last January for the first time. This was done mainly out of concern that the proportion of low wage workers has been steadily rising because of deregulation of the job market and the reduced role of unions.

For its part, the advanced economies think tank, the Organization for Economic Co-operation and Development, weighed in on the side of advocates of minimum wages in the recently released 2015 Employment Outlook. Based on academic research it argued that "at reasonable levels, increases in minimum wages are unlikely to have significant negative employment effects" but do "have a strong impact on wages at the bottom of the distribution."

In other words, minimum wages raise low wages and don't come at the cost of jobs.

The OECD observes that minimum wages in advanced economies are in a wide range of 40 per cent to 60 per cent of the median or midpoint national wage. Canada is currently at the low end of that range, among the bottom one-third of countries, while France and Australia are at the top end of the range.

The OECD argues that the real debate should be over the mix of minimum wage, tax and income transfer policies that most effectively raise incomes for low paid workers. By itself, a minimum wage is a blunt tool for lowering poverty, but it can work in combination with tax credits and other measures to boost the incomes of working poor families, to make work pay, and to ensure that government social spending does not just subsidize low wage employers.

Support for decent minimum wages on the part of some conservative governments partly reflects their concern over the growing fiscal costs of income tested transfers to low income families. In Britain, the minimum wage is being hiked so as to partly offset the impact on poor families of deep cuts to benefits.

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Some conservatives have come to recognize that a minimum wage floor is needed to prevent employers from overly relying on costly government programs to support their employees. In the United States, for example, there is widespread and legitimate concern that many fast food and retail workers are paid such low wages that they are forced to rely on taxpayer funded food stamps to feed their families.

Put bluntly, if the job market is generating a lot of very low wage and insecure jobs that cannot keep many working families out of poverty, we can choose to act or not act.

If we choose to act, minimum wages are one part of a needed suite of policies. A decent minimum wage complements anti-poverty programs such as the Canada Child Tax Benefit and the Working Income Tax Benefit by boosting low incomes in a cost effective manner and by making work pay.

Progressives argue for a decent minimum wage plus generous tax credits to effectively fight poverty. Conservatives cannot oppose both decent minimum wages and more generous social programs while credibly claiming to care about poverty.

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