Can employers afford to pay a ‘living wage?’

Vancouver’s living wage is $18.81 an hour; its current minimum wage is $8

By Todd Humber

There is a growing gap between the minimum wage and a “living wage” — the hourly rate at which a household can meet its basic needs.

That’s the conclusion the Canadian Centre for Policy Alternatives (CCPA) came to in a report that looked at what workers in the Vancouver area need to earn to have a “basic level of economic security.” (See below for a sample budget for a living wage earner.)

British Columbia’s current minimum wage is $8 an hour, though the province recently announced plans to raise it to $10.25 an hour by May 1, 2012.

Even with the boost, it’s a far cry from the living wage calculated by CCPA — $18.81 an hour for Metro Vancouver in 2011. That’s up significantly from 2008, when it was $16.74 an hour.

According to Statistics Canada, only 2.3 per cent of B.C.’s workforce earn the minimum wage. The average weekly wage in the province in December 2010, the most recent data available from Statistics Canada, was $834.21.

Assuming that’s based on a 40-hour workweek, that’s $20.86 an hour — so B.C. employers are, on average, already paying more than a living wage.

So the question arises: Can the employers that don’t currently pay a living wage afford to do so?

The math isn’t pretty. (CFOs may want to look away.)

A minimum wage earner in Vancouver, working 35 hours per week, would pull in $280 a week, or $14,560 per year, before taxes. That same worker, earning the living wage, would pull in $658.35 a week, or $34,234.20 per year — a difference of more than $20,000 annually.

Even with B.C.’s proposed higher minimum wage of $10.25 per hour, a gap of more than $15,000 remains.

The minimum wage hike on its own is going to be a tough pill for some businesses to swallow. Paying a living wage would undoubtedly force some of them to close up shop — a firm paying minimum wage likely can’t afford to more than double salaries.

But that doesn’t mean cash-strapped employers should dismiss the CCPA’s report. There are benefits that come from paying employees a living wage that don’t show up on the balance sheet — at least not in black-and-white numbers.

While the benefits of paying workers a living wage might be obvious to seasoned HR professionals, they’re a little hazy for some employers — especially ones without a strong HR department or no HR department at all. They include:

Reduced turnover: Pay people more, and they’ll stick around longer — that’s obvious. What’s not so obvious are the hidden costs attached to turnover, including direct replacement costs and indirect costs such as lost productivity.

Improved productivity and engagement: A worker who isn’t stressed all day worrying about how they’re going to pay the rent, or put food on the table, will be able to focus on the job at hand — which is driving revenue for the employer.

Interestingly, the 2012 Olympic Games in London will be the first “living wage” Olympics, according to the CCPA. And many employers, including HSBC Bank, KPMG and PriceWaterhouseCoopers, have embraced the concept.

Not all employers can afford to pay a living wage. But reports like this serve as a wake-up notice for employers — if you’re paying below a living wage, it may be time to re-evaluate compensation practices and see if boosting salaries might be a boon to the bottom line. After all, you’ve got to spend money to make money.

Todd Humber is the managing editor of Canadian HR Reporter, the national journal of human resource management. For more information, visit www.hrreporter.com.

BY THE NUMBERS

Sample living wage budget

The sample budget is based on a family of two parents with two children aged four and seven, with both parents working full time at 35 hours per week. At $18.81 per hour for Metro Vancouver — or $34,234 annually for each parent working full-time — here’s what a family earning a living wage could afford:

FOOD: $768/month (based on estimates by the Dietitians of Canada for a nutritious diet)

CLOTHING AND FOOTWEAR: $185/month

SHELTER: $1,360/month (includes conservative rent estimate for a three-bedroom apartment, utilities, telephone, and insurance on home contents)

TRANSPORTATION: $496/month (includes two-zone bus pass and the cost of owning and operating a used car)

CHILD CARE: $1,136/month (for a four year old in full-time care, a seven year old in after-school care, and six weeks of summer care). Notably, child care is the second most expensive item in the living wage family budget after shelter.

MEDICAL SERVICES PLAN (MSP) PREMIUMS: $121/month

NON-MSP HEALTH CARE: $133/month (for Pacific Blue Cross Insurance; does not include expenses only partially covered by the insurance plan)

PARENTS’ EDUCATION: $89/month (allows for two college courses per year)

CONTINGENCY FUND: $219/month (provides some cushion for unexpected events like the serious illness of a family member, transition time between jobs, etc.)

OTHER: $714/month (covers personal care, furniture, household sup­plies, school supplies, some reading materials, minimal recreation and entertainment)

This living wage calculation does not cover:

•  Credit card, loan, or other debt/interest payments;

•  Savings for retirement;

•  Owning a home;

•  Savings for children’s future education;

•  Anything beyond minimal recreation, entertainment, or holiday costs;

•  Costs of caring for a disabled, seriously ill, or elderly family member; or

•  Much of a cushion for emergencies or tough times.

 Source: Working for a Living Wage 2011, Canadian Centre for Policy Alternatives

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