Reward working to improve income for the working poor

With the enhancements announced in the budget, couples or single parents with family incomes below $36,483 will receive a maximum annual benefit of $2,335, while single workers making less than $24,111 will receive a maximum of $1,355.

The family income threshold for receiving benefits is a critical feature of the CWB. It means the program targets working families that have relatively low income.

In contrast, the minimum wage doesn’t efficiently target low-income families since 88 percent of minimum wage earners in Canada don’t live in low-income households, as defined by the Statistics Canada’s low-income cut-off.

While this may sound counterintuitive, the reality is most minimum wage earners aren’t the sole or primary earners in their household. Typically, they’re young people living with their parents or have an employed spouse.

This highlights the fundamental problem with the minimum wage: it’s not a well-targeted anti-poverty tool. The CWB does a much better job of ensuring families with relatively low-income benefit from the policy.

A higher minimum wage doesn’t just ineffectively target the working poor. It also makes it harder for less-skilled workers to find work. When employers are forced by the government to pay higher wages to young workers with little work experience and skills, they tend to cut back on the number of people they employ, work hours, and other forms of compensation such as job training and/or fringe benefits. In some cases, businesses pass along the higher labour costs of the minimum wage to customers in the form of higher prices, which, perversely, has a disproportionate impact on the poor.

Unlike minimum wage hikes, the CWB doesn’t artificially raise costs for employers and therefore doesn’t have the same economic drawbacks.

Not that the CWB is perfect. It could discourage some recipients from working because, over a certain income level, benefits are reduced for every extra dollar earned. Losing the cash transfer may discourage some recipients from working and earning more income.

However, the federal budget takes steps to mitigate this problem by lowering the benefit reduction rate from 14 percent to 12 percent, thus reducing the work disincentives for CWB recipients.

If governments truly want to help the working poor, they should abandon any planned minimum wage hikes and focus on policies such as the CWB.

Charles Lammam is director of fiscal studies and Hugh MacIntyre is senior policy analyst at the independent non-partisan Fraser Institute (www.fraserinstitute.org)

The views, opinions and positions expressed by all columnists and contributors are the author’s alone. They do not inherently or expressly reflect the views, opinions and/or positions of Troy Media, CKPGToday.ca, or the Jim Pattison Broadcast Group.

by Charles Lammam and Hugh MacIntyre - The Fraser Institute

Reward working to improve income for the working poor

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