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Since 1996, when the federal government abandoned its policy of setting its own minimum wage, minimum wages in the federal jurisdiction in Canada are set to be equal to the minimum wage of the province/ territory in which the federal jurisdiction worker is employed. This applies to about 10 percent of the workforce, in private sector industries that are international or inter-jurisdictional in scope such areas as in transportation, banks, telecommunications and some federal Crown corporations. In practice, the federal government also voluntarily applies the federal minimum wage to its own workforce (Battle 2003, p. 3).
The federal minimum wage, however, is generally a non-binding constraint since the industries in which federal jurisdiction workers are employed are generally well-paying industries. While precise numbers of those affected are not available, some earlier evidence from 1986 highlights that they are likely to be small, and even smaller now given the general increase in wages. That evidence indicates that only 1/10 of one percent of all workers in Canada were directly affected by the federal minimum wage. Only about 1.4% of workers in the federal jurisdiction worked in minimum wage jobs (compared to the 4.6% of workers in all jobs as indicated previously). The characteristics of persons in those jobs tended to be similar to the characteristics of minimum wage workers in general: in the service sector; occupied by young workers often students; in short-term jobs; and non-union.
Since minimum wages in the federal jurisdiction are no longer independently set, but rather they follow the minimum wages in the jurisdictions where the federally protected workers are employed, they do not have an indirect role in setting leading-edge minimum wages for other jurisdictions to follow. In essence, federal minimum wages are largely a “non-issue” because, directly, the minimum wage is largely irrelevant for workers in the federal jurisdiction, and indirectly, it does not have a leading-edge role since it is a “follower” and not a “leader” in minimum wage setting.
This raises the issue of whether that should change and the federal jurisdiction should revert back to setting its own independent wage that could then serve as a leading-edge model, pressuring other jurisdictions to follow, especially given the visibility of the federal government. The analysis of this paper suggests that the main advantage of doing so is that it may inhibit a “race-to-the bottom” as the various jurisdictions try to compete for business investment and the jobs associated with that investment by reducing their labour regulations, including minimum wages. If all jurisdictions feel political pressure to gravitate towards the federal norm, then this may sustain higher minimum wages.
The analysis of this paper, however, also suggests three problems with this line of reasoning. First, it assumes that inter-jurisdictional competition on the basis of reducing regulatory costs is always negative. This is certainly questionable, since many regulations serve an efficiency rationale (providing infrastructure, improving the functioning of markets) and these should not only survive but thrive under greater competitive pressures. If minimum wages serve such functions then they should not be part of a “race-to-the-bottom.” As well, some jurisdictions may simply choose not to compete on the basis of low legislative minimum wages even if they impede market efficiency and have adverse employment effects.
The second problem with this line of reasoning is that it would create horizontal inequities (the unequal treatment of equals) in that individuals in exactly the same jobs could be subject to different minimum wages simply because one is under federal jurisdiction and the other under a provincial/territorial jurisdiction. This must confront the possibility that two employees under federal jurisdiction could be paid a different wage simply because they are working in two different provinces. Inter-provincial wage differences, however, are a common phenomenon, although when the workers are in contiguous locations (e.g., Ottawa vs. Gatineau) the minimum wage differences for workers in the federal jurisdiction are more anomalous, especially since Ottawa currently has the lower minimum wage but higher cost of living.
The third and most serious problem with the line of reasoning that the federal jurisdiction should revert back to setting its own independent minimum wage and provide a leading-edge role model for other jurisdictions, is that it assumes that higher minimum wages are desirable. The analysis of this paper suggest that this may be true in some areas like reducing wage inequality, but this comes at a cost in terms of a very likely adverse employment effect that seems to be well documented for Canada. As well, it is an exceedingly blunt instrument for fighting poverty, and may even be harmful. This can be an issue of particular concern if the federal government takes on the mantle of being a role model in this area since it effectively bears little of the cost of its actions (since few workers in the federal jurisdiction are at the minimum wage where their employment could be adversely affected) and yet it can reap political benefits by appearing to be a role model. Other jurisdictions where the adverse effects are more likely to occur may feel political pressure to follow, even if there are adverse effects. The notion that “people should face the natural consequences of their actions” should also apply to governments. There is a temptation to revert back to setting its own minimum wages since that could be politically expedient for the federal government and give it visibility as a role model in this area. The analysis of this paper, however, suggests that such a temptation should be resisted.