Everyone wants to help the working poor. Unfortunately, governments across the country are going about it the wrong way by raising the minimum wage to $15. That misguided move does a bad job of targeting the people we want to help and produces a host of unintended consequences.
The recent federal budget, which made changes to the Working Income Tax Benefit, now renamed the Canada Workers Benefit (CWB) features a better way to help the working poor.
While the CWB has been around since 2007, it doesn’t receive the attention it deserves as an effective policy tool for helping the working poor. The budget proposes to enhance the program, which will almost certainly do more to help the working poor than minimum wage hikes, including in Ontario, Alberta and British Columbia.
The CWB provides cash transfers to working Canadians below a certain income level. Basically, the program encourages labour participation by rewarding work. The evidence from a similar program in the U.S. (the Earned Income Tax Credit) suggests this type of program boosts participation in the workforce.
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% 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.
— Warren Kinsella is a Canadian journalist, political adviser and commentator.
— Charles Lammam is director of fiscal studies
— Hugh MacIntyre is senior policy analyst
At the independent non-partisan Fraser Institute (www.fraserinstitute.org)