Edmonton Social Planning Council - Make Work Pay for More Alberta Families

Make Work Pay for More Alberta Families

September 04, 2006
Edmonton Journal Op-Editorial
By John Kolkman

When the National Council of Welfare released a study showing Alberta’s welfare rates to be among the lowest in Canada, Premier Ralph Klein responded that his government’s philosophy is to provide a ‘hand up’ rather than a ‘handout.’ (Source: Alberta Hansard, August 24, 2006).
Alberta got two-thirds of people off welfare in the past twelve years, in part because of a renewed emphasis on skills training programs. The strong economy resulting from high energy prices has also created many new jobs.

The result is that most low-income people today are working. The problem is many are working at jobs that don’t pay a wage covering basic necessities like housing, utilities, food, clothing and transportation.

Given the current focus on labour shortages, it’s surprising more attention isn’t being paid to why employers are finding it difficult to recruit and retain workers. Could it have something to do with many jobs not paying well enough to keep people in them?

There are a number of proactive solutions to make work pay that don’t involved breaking the bank or harming Alberta’s economic competitiveness.

1. Raise the minimum wage. Despite last September’s increase to $7 per hour, Alberta’s minimum wage is still the lowest of any province outside Atlantic Canada. While only about 3 per cent of the Alberta workforce makes $7 per hour, the minimum wage raises the floor for other workers making slightly higher wages.

A family of four making $7 per hour where both adults work full-time all year (40 hours a week for 52 weeks) would earn $29,120. That’s a full 25% below the $38,610 needed to escape poverty using the most commonly used poverty measure (the Low-Income Cut-Off)

No wonder the Alberta government spends about $30 million a year supplementing the earnings of those working that cannot make ends meet from their job.

There should be an immediate increase of the minimum wage to at least $8 per hour and thereafter tying it to increases in living costs. This would put Alberta more in line with other provinces and should pose little or no difficulty for employers in this province’s tight labour market.

2. Adopt a public sector living wage policy. Those directly employed by public institutions should be paid a living wage. Companies contracting with the public sector should also be required to pay a living wage to their employees. To be meaningful, the floor for a living wage should be high enough to allow people working full-time to lift themselves out of poverty. This requires a living wage of at least $10 per hour.

In 2005, 220,400 Albertans (over one in seven employed workers) made between the minimum wage and $10 per hour (Source: Public Interest Alberta analysis of Statistics Canada employment data).

Asking the public sector and companies contracting with the public sector to pay a living wage would set a good example for private sector employers while raising the wages of a significant number of workers.

3. Reduce high marginal tax rates for low-income working adults. The wealthiest Albertans only pay 39 per cent in combined federal and provincial tax on their last dollar of personal income.

Five years ago they paid 46 per cent. Marginal tax rates for high-income earners were lowered to ensure working harder isn’t punished by higher rates of taxation. Low-wage workers should similarly not be discouraged from working harder. Yet under income-tested assistance programs, benefits are phased out as incomes rise leading to high marginal tax rates.

There are at least eight such programs with the well-intentioned goal of targeting assistance to those needing it. In combination, however, an over-reliance on income-testing can cause some low-income families to lose more than a dollar in benefits for every dollar their employment income rises.

Abolishing health care premiums is one way to do this. That’s because premium subsidies get phased out as income rises. While benefiting all Albertans, scrapping health care premiums would particularly benefit low-wage workers who would no longer lose premium subsidies as their incomes rise.

The province should also restructure how childcare dollars are invested. There should be less reliance on income-tested childcare subsidies that steeply decline as employment income rises. Instead, additional investment is needed in direct financial support for accredited childcare centres so that monthly fees can be reduced for all parents.

Unfortunately, the Harper government’s decision to cancel the federal-provincial childcare agreements effective next March will do the very opposite. Alberta’s modest investment in a quality childcare and early learning system is at serious risk. Childcare fees are likely to go up rather than down as a result.

4. Progressively universalize prescription drug and dental benefits. A recent study found that only 13 per cent of workers making $10 per hour or less had employer extended health and dental benefit plans compared to 77 per cent of workers making $20 per hour or more (Source: Statistics Canada, Perspectives on Labour and Income, May 2003).

In the past decade, provincial governments including Alberta have allowed those leaving income support programs to maintain extended health and dental benefits so long as their employment income remains low. If employment income rises, the benefits are lost.

While the objective of encouraging attachment to paid employment is commendable, keeping people trapped in low wage jobs is not. That’s why the Canadian Policy Research Network recently recommended that prescription drugs and basic dental services be provided by government on a more universal basis with benefits only taxed back at high levels of income (Source: Making Work Pay: Findings and Recommendations, May 2006).

In conclusion, wages not keeping pace with economic growth is a decade long trend. This is particularly the case for low-wage workers. As we celebrate another Labour Day, let’s make some changes to give more hardworking Alberta families a ticket out of poverty.

John Kolkman is the Research and Policy Analysis Coordinator for the Edmonton Social Planning Council.