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Canadian Manufacturers & Exporters Presentation to BC Fair Wage Commission

November 30, 2017 by Andrew Wynn-Williams


I am here today on behalf of Canadian Manufacturers & Exporters (CME).  CME is Canada’s largest trade and industry association, and the voice of manufacturing and global business in Canada. I would like to thank you for the opportunity to present.

Founded in 1871, CME represents more than 10,000 leading companies nationwide, and – through various initiatives, including the establishment of the Canadian Manufacturing Coalition – touches more than 100,000 companies from coast to coast, engaged in manufacturing, international trade, and service-related industries. More than 85 per cent of our members are small and medium-sized enterprises.

Collectively, CME's membership network accounts for an estimated 82 per cent of Canadian manufacturing production and 90 per cent of all goods and services exports.

Manufacturing makes a significant contribution to British Columbia’s prosperity.  It is the third largest contributor to the provincial economy generating $45.8 billion in sales and a bit more than 7% of GDP. More than 66% of the Province’s exports are manufactured goods.

Manufacturing provides well-paying, high-skilled employment opportunities to more than 170,000 people across the Province with wages that are 15% higher than the provincial average and totaled $11 billion in 2015.

We are not here to oppose an increase in the minimum wage but to counsel caution in how it is implemented. I am going to begin with some general data on minimum wage. Then I will address some specifics with regard to the manufacturing industry and will close with some recommendations.

Before I begin to discuss the specifics of the impact on the manufacturing sector I wanted to draw your attention to some data from other places. These indicate why a cautious approach is required.

The first is Ontario. Now although Ontario is still in the process of implementing the minimum wage, its own Financial Accountability Office released a commentary in September, Assessing the Economic Impact of Ontario’s Proposed Minimum Wage Increase. The FAO concluded, “Since minimum wages target low-wage workers, but not necessarily low-income families, raising the minimum wage would be an inefficient policy tool for reducing overall poverty.” (p. 6) Rather, the FAO conservatively estimates the rapid move to a $15 per hour minimum wage will result in the elimination of 50,000 jobs. (p. 5) The FAO also notes that since the increase proposed in Ontario is “both larger and more rapid than past experience” there is evidence to suggest the jobs loss could be greater than 50,000. (p. 4)

The second piece of data comes from Alberta which is in the process of raising its minimum wage from $10.20 per hour to $15 per hour. The CD Howe Institute conducted a study on the impact of the first two stage of that increase. It concluded that:

“Using the elasticity estimates from the Canadian evidence, together with the magnitude of Alberta’s minimum wage increases, yields an expected employment loss of roughly 25,000 workers. A similar number of affected workers have already lost their jobs since this policy was first implemented, despite being only halfway toward its $15 goal.” (p. 8)

There is also a study out of Seattle published by the National Bureau of Economic research. I know that the American experience is different from our own but its findings were not dissimilar in terms of negative impact on jobs.  

With regards to the manufacturing industry there are very few manufacturers who have minimum wage employees. 

There will be an impact on the industry however. That impact will come for two reasons. The first is that there are some manufacturers who have very tight margins and some low wage employees. The second is the cascade effect. The current manufacturing unemployment rate is around 3% - that is virtually full employment. Manufacturers are already competing hard for the available labour force, and paying somewhat above the minimum wage – even for low skill jobs – is one of the ways they can compete for talent. Increasing minimum wage just makes that competition harder and means they either increase the wages or curtail production. Both solutions hinder competitiveness.

This is important because manufacturing is a trade-exposed industry. Most of what we make leaves the province and has to compete around the world. If BC manufacturers are going to remain globally competitive then they need time to adjust to the new regime. A sudden or abrupt escalation of the minimum wage could have significant unintended consequences, including loss of employment, loss of paid hours, and a decrease in hiring under-represented groups in the work force such as women and youth who typically start careers in entry level positions.

While wage increases are targeted at minimum wage, there is no doubt that wage escalation will affect all pay levels within a company which will have an impact on overall competitiveness and jobs. StatsCan data suggests that there is a strong inverse relationship between high minimum wages and manufacturing employment. In Ontario for example they have determined that whenever the minimum wage rises (as a % of average hourly earnings), manufacturing employment falls. This conclusion is supported by a report from the Canadian Centre for Economic Analysis which estimated that Bill 148 places 16,800 manufacturing jobs at risk in Ontario. Now please note that Bill 148 addresses more than just minimum wage but minimum wage was the key component of that calculation.

Before I provide our recommendations there are a couple of data pieces specific to British Columbia that I would like to highlight.

The first is that in the past eight years the minimum wage has increased by 42% in BC. This increase has come in fits and starts instead of being steady and predictable. There has been a 0% increase some years and one year had an increase of nearly 19%. During that time inflation (with the exception of 2011) held at less than 2% per year. As a comparator an increase in the current minimum wage to $15 would be a 32% increase. The total increase from the $8.00 the minimum wage was in 2008 to $15 is 88%.

The second relates to the people who are currently earning minimum wage. Of the 93,000 British Columbians earning minimum wage in 2016, 5% were termed as head of a household and a further 16% were considered independent. An increase in minimum wage is not the best solution for these individuals. They need jobs higher up the pay scale. As a Manufacturing industry with a talent shortage we are very interested in these workers.

In light of this data, CME would like to make the following recommendations.


Recommendations:

  1. Whatever increases are enacted, structure them so the increase only takes place once per year to allow time for industry to adjust.
  2. Make the increases predictable, so industry has time to plan for the change.
  3. Make the increases in affordable increments so industry can work to absorb the cost with minimal impact on competitiveness and job loss – we recommend $0.75 per year (7%) bringing us to $15 per hour in 2022.
  4. After the $15 is reached, index future increases to inflation
  5. Increase training funding and tax credits targeted in ways to apply to that 21% of minimum wage earners that are either independent or head of household. This will allow the Manufacturing industry to provide them with higher paid, skilled jobs.

 

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