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No shortage of low-wage work in expensive cities, but it’s bad for the economy: Don Pittis

Keyur Morthana is no lazy millennial. The 25-year-old lives and works in one of Canada’s most expensive cities and earns minimum wage, which in Ontario recently rose to $11.40 an hour.

While many businesses complain that moves to raise wages for Canada’s poorest paid will mean higher prices and fewer jobs, a new report by business leaders proposing a better kind of capitalism says low wages are an expense Canada cannot afford.

On a busy shopping street, beside a giant poster advertising submarine sandwiches at $4 each is a smaller one that says “Now Hiring.” But the pay is well below the rich city’s median income of about $78,000 a year.

Seven days a week

On the day I talk to Morthana the Toronto Real Estate board has just announced that the price of a detached house went up 23 per cent in the city to an average of $1.29 million. The average price of houses of all kinds is now $756,000.

“I can get by because I work seven days a week,” says Morthana, who shares an apartment with friends in a distant suburb and commutes to work. “Sometimes it’s hard.”

The Ten Spot hiring

The ubiquitous nail and waxing salons in Canadian cities are still looking for low-wage workers, although this Toronto-based chain, The Ten Spot, considers itself a cut above and offers new workers 12.50 an hour, which is more than the minimum. (Don Pittis/CBC)

A few doors down the street, a sign in the window of one of a number of waxing and nail salons offers a “dream career.”

According to the manager, The Ten Spot, part of a Toronto-based Canadian chain, is a cut above the average nail shop. The pay is $12.50 for counter clerks, rising to $13.50 with experience.

Bad for the bottom line

In Canada, setting the minimum wage is the responsibility of the provinces, so the rate varies, from a high of $13 in Nunavut to a low of $10.50 in Newfoundland and Labrador. 

But higher or lower, minimum-wage earners remain far below levels considered a Canadian living wage, and nowhere are the extremes of wealth versus cost of living worse than in Canada’s expensive cities.

And according to a new analysis by a group of sophisticated business leaders, that’s bad for the bottom line.

Re-imagining Capitalism book cover

Re-imagining Capitalism explores systems where greater equality leads to greater business success. (Oxford University Press)

Dezso Horvath, dean of York University’s Schulich School of Business, says their research shows that the world’s most dynamic countries are ones, especially those in northern Europe, that have adopted a “stakeholder” approach to capitalism.

“The countries using this form of capitalism are becoming more globally competitive,” says Horvath, who edited the book with Dominic Barton, global managing partner of consulting firm McKinsey Company.

With articles contributed by well-known business leaders, the book is intended to acknowledge and address what the authors call “a growing public distrust of capitalism and its ability to improve wealth and well-being for the many.”

Shareholder model eclipsed

“Whichever direction capitalism ends up taking, it is increasingly apparent that the narrow shareholder model is being gradually eclipsed by a model that is more closely attuned to the complexity and diversity of the world we live in — a model that is more stakeholder-oriented and more guided by principles of long-term value creation and sustainability,” says the book in a concluding chapter written by Horvath and Barton.

Horvath says one of the key ingredients of the system is a smaller gap between the rich and the poor. 

He says inequality has been largely responsible for the anger that caused the Brexit vote in the U.K. and the rise of Donald Trump in the United States. 

“If you look at the U.S. and Britain, they are the [rich world] countries with the largest educational and income inequalities,” says Horvath. “Whereas Sweden, Switzerland and all those, there are no really poor people but neither are there billionaires of really large scale.”

Horvath says there are signs that’s paying off. Economic growth in Sweden is at an astounding 3.5 per cent, higher than any other country but China, he says.

More equal countries are also winners in innovation.

Minus the military

“Yes, the U.S. is very innovative, but if you take away all the money that is going to military research, the U.S. is actually not as good,” says Horvath. 

He says not only is a stakeholder-driven economy more competitive, it also generates a much higher level of quality of life — something quite different from working seven days a week at minimum wage.

“Canada, at the moment, is somewhere in between the United States and the well-developed European nations,” says Horvath. “Minimum wage is much higher [in those European countries] and everybody is reasonably well paid, but as I said, the difference between minimum wage and the highest wage is much more limited.”

As usual with great theoretical analysis, the hard part is making the transition. We can’t snap our fingers and turn Canada into Switzerland or Sweden. But what the new book’s analysis shows is that keeping minimum wages low and letting the rich get very rich is not a necessity for business success. In fact, says Horvath, quite the opposite.

“A large middle class is the engine of economic development.”

Follow Don on Twitter @don_pittis

More analysis by Don Pittis

Article source: http://www.cbc.ca/news/business/minimum-wage-economic-success-1.3792225?cmp=rss