August 29, 2000
Kamloops Daily News



It makes good sense.  Instead of relying on economic
theories to predict the outcomes of government policies,
examine models of policies already in use.  This pragmatic
approach could be a useful tool, says Fred Bienefeld,
professor of economics at  Carleton University.

Take the island state of  Mauritius, for example.  That
country in the Indian Ocean has kept wages low in order to
attract capital.   Such a model can yield a certain kind of
success, but it is a very limited success. Mauritius has
become trapped in what is effectively a low-wage cycle.  Its
economic success and its economic future depend on its
ability to make labour available more cheaply than its
competitors. It's a race to the bottom.

The Taiwan model, on the other hand, is based on the
creation of ideas: developing the capability to generate
technology and sell products that use that technology. 
Ideas have a currency that exceed the value of  cheap
labour.  Coupled with a strategic industrial plan, Taiwan
has reaped remarkable results.

What's instructive about Taiwan and other East Asian
economies over the last 40 years is an economic
transformation that is virtually unprecedented in history. 
Real wages rose dramatically and their competitive edge
was maintained.

Hourly wages in British Columbian are higher than the
Canadian average, according to Statistics Canada.  Our
average the hourly wage is $17.26, compared to $16.14
nationally.  B.C. and Ontario are the only provinces with
hourly wages above the national average.

You would think that high wages would be cause for cheer. 
But critics counter that B.C. unemployment is higher because
of the our high wages.  They say our minimum wage is too
high at $7.15 per hour, compared to Alberta at $5.90.

The assumption is that if our minimum wage was lower,  more
jobs would be created.   But unemployment is lower in
Alberta because the petroleum industry is booming, not
because of low wages.  Evidence of that can be found in the
north-east section of B.C. where the petroleum industry is
also thriving and unemployment is down.

Low minimum wages may create more low paying jobs, but the
effect is to spread poverty, not wealth.  More Albertans
work in low paying jobs than in B.C.  -- 28 per cent in
Alberta compared to 19 per cent for B.C., according to a
study done by Statistics Canada Labour Force Survey, 1997.
Low wages generate low paying jobs, nothing else.

But, say the critics of B.C.'s high wages, Alberta is more
productive.  It depends how you define productivity -- and
not even economists can agree on that.  A simple definition
of productivity is the value of output goods divided by
input costs. Under this definition, lower wages should
increase efficiency. 

But other costs are often overlooked, such as environmental
degradation. Loss of safe water and clean air will
eventually have to be paid for -- usually not by those who
cased it.  The problem is that we all have to eventually pay
for these costs, and a definition of productivity that
doesn't include them is misleading.

Productivity is better defined as the degree to which our
standard of living is improved by human effort, says 
Bienefeld.  Under this definition, the value of cheap
widgets produced by low paid workers would not qualify as
high productivity unless the standard of living for workers
is improved in the process.

Of course, Alberta is not Mauritius (although the population
is approximately the same), and B.C. is not Taiwan.  But
there are some lessons to be learned.  Alberta could become
trapped in a low wage cycle -- industry drawn to Alberta
only because of low wages.

B.C. benefits from higher wages.  A low paid, skilled
workforce is a restless workforce.  Skilled workers move to
the highest paying jobs.   They are ready to go to the
highest bidder, and take their skills with them.   High
wages attract talented people who generate ideas and
creative solutions to industrial and business problems.

Society also benefits by paying its less skilled workers a
wage that they can live on.  High minimum wages create a
workforce that is not reliant on government handouts and
social assistance  to survive.  Failure to pay liveable
wages creates a hidden cost that we all pay for though
wasted human potential and increased crime.

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