I have the pleasure of serving on the End Poverty Task Force for the Mayor of the City of Edmonton. I completed the following preliminary analysis to the key question: what are the real costs (and benefits) of ending poverty by paying a living wage to those employable Edmonton adults currently working or living below a $15.00 per hour living wage (now over $17 per hour according to new estimates for 2016 by the Edmonton Social Planning Council)

I ran some preliminary estimates of the estimated full societal net costs of eliminating poverty (if the goal of ‘elimination’ is measured by ‘having enough money to afford basic necessities of life (including shelter, food, transportation)’, which could be defined in terms of ensuring the estimated 100,870 Edmontonians living at or below LIM (Low Income Measure) plus the estimated 103,200 working adults (20 years+) who are earning less than a $15.00/hour living wage.

I’m defining poverty based on what I found as a common definition emerging from the Leger perception poll of Edmontonians, namely poverty may be defined as ‘the lack of sufficient money/income to afford basic necessities of life.’ The common theme running through the definitions of poverty is lack of sufficient financial resources for living and participating fully in society, consistent with the Task Force working definition of poverty (Edmontonians experience poverty when they lack or are denied economic, social and cultural resources to have a quality of life that sustains and facilitates full and meaningful participation in the community.)[1]

Based on this definition of ‘lack of money resources’ I am assuming that paying a living wage of at least $15.00/hour to every Edmontonian[2] who is NOT earning or receiving benefits in the amount of a living wage will be sufficient to alleviate ‘poverty’ conditions for the majority of Edmonton’s ‘poor.’ My estimates of the costs of eliminating poverty are focused on the ‘lack of economic, social and cultural resources’ for which I am using sufficiency of income as the primary metric. I realize this more money (living wage) is likely insufficient to meet the need and access to more resources.

The question I’m attempting to answer is as follows:

What are the estimated costs of paying the ‘poor’ a living wage compared to the current estimated societal cost of poverty: the various public and private costs of servicing those living in poverty)?

Summary of Analysis

  1. Adults living below LIM (‘poverty line): An estimated 72,900 adults and 27,970 children (100,810 Edmontonians or 12.3% of Edmonton’s population) lived at or below the LIM (low income cutoff), which is $16,968 for a single person or an estimated hourly wage of $8.84/hour in 2012. This is below Alberta’s minimum wage of $10.20/hour.[3]
  2. Working Adults Earning Less than a Living Wage: An estimated 103,200 working adults[4] (20 years and older) earned less than $15.00/hour in 2013. I have estimated the number of working adults who are making less than $10.00/hour and those earning $11.00/hour, $12.00/hour and less than $15.00/hour. Presumably some of the 72,900 Edmontonian adults living below LIM (an estimated hourly wage of $8.84/hour) are included in the estimated 14,799 living below $10.00/hour.[5]
Employed people earning less than $15.00 hour, Edmonton, 2013 15-19 year old All other ages (20+ age) Total Estimated cost to top up wages to $15.00 for 20+ aged workers
less than $10.00 8,600 14,799 23,399 142,070,400
between $10.01 and $11.00 6,500 19,301 25,801 166,760,640
between $11.01 and $12.00 4,000 18,900 22,900 127,008,000
between $12.01 and $15.00 6,600 50,200 56,800 144,576,000
Total earning $15.00 or less 25,700 103,200 128,900 580,415,040
  1. Total Number of Edmonton Adults Living on Less than a Living Wage: A total of 161,301 adults (20+ age) are living at or below a living-wage of $15.00/hour and would qualify for a living-wage top-up. Therefore, 6% of Edmonton’s adult (20 years+) population would qualify for a living-wage top up.
  2. Homeless and Costs: An estimated 2,252 Edmontonians were homeless in 2013[6]. Based on an average cost of chronic homelessness of almost $149,000 per homeless person in 2013 (based on Calgary homelessness costs estimates of $134,000 per person in 2007), the total estimated societal cost of these homeless persons is $335.5 million in 2013.
  1. Cost of Paying a Living Wage: The cost of paying these adults a living wage would amount to $658.5 million for the 72,900 adults living at or below LIM ($11,334 per adult) and $556.2 million to top up all other working adults ($5,390 per adult worker) earning less than $15.00/hour. The total price of topping up all those adults living on less than $15.00/hour would total $1.215 billion in 2013 or $7,531 per person per annum or an average increment of $3.92/hour.[7]
  2. Cost of Poverty: The current estimated cost of poverty in Edmonton in 2013 is $3.04 billion, based on the estimated cost of poverty for Alberta that ranges between $7.1-9.5 billion ($2700 for every tax payer), which includes health care costs (, crime, intergenerational and opportunity costs.[8] The cost of poverty is thus $30,109 per capita for the estimated 100,870 adults and children living at or below LIM (after-tax). For purposes of my analysis I assume the cost of homelessness ($335.5 million) to be included in the total cost of poverty figure.
  3. Poverty Costs as % of Edmonton’s GDP: The estimated cost of servicing poverty in 2013 of $3.04 billion represents 4.5% of Edmonton (City) GDP in 2013. Ironically the societal costs of servicing the poor actually contributes to Edmonton’s economic (GDP) growth.
  4. Net Benefit of Paying a Living Wage: Taking the difference between the estimated cost of paying a living wage to both those living below LIM and the cost of paying a living wage for the adults earning less than $15.00/hour ($1.267 billion) and the estimated $2.93 billion cost of poverty associated with those Edmontonians living at or below LIM (as well as the societal cost of Edmonton’s homeless) would result in a net saving to Edmonton’s economy of $1.822 billion.

Conclusion

Currently poverty costs Edmonton’s economy about $3.04 billion per year or contributes 4.5% to Edmonton’s GDP. Over 100,000 Edmontonians (12.3% of the population) live in poverty conditions that are below the Low-Income-Measure (LIM) line. This regrettable societal cost is a drag on Edmonton’s productivity and well-being.

My analysis suggests that paying Edmonton’s poor as well as those earning less than a living-wage ($15.00/hour) would cost $1.215 billion per annum but would result in a net economic saving to Edmonton’s economy of $1.822 billion per annum. Savings would result from foregone expenditures on the various health servicing Edmonton’s poor (notwithstanding the cost of the chronically homeless). Of course there would not be a 100% cost saving on current poverty-related societal costs, nonetheless, there would be significant savings.

This assumes that most of the conditions of ‘poverty’ could be ‘eliminated’ by ensuring all adult Edmontonians earn a living wage; a wage sufficient to afford the basic necessities of life and the economic, social and cultural resources to have a quality of life that sustain and facilitate full and meaningful participation in the community (based on the definition of poverty developed by the Task Force.

A commitment by governments, businesses and all Edmontonians would be required to top-up the wages and benefits by an average $7,531 per person per annum or an average increment of $3.92/hour of paid work for those 161,000 adult Edmontonians who currently live below the living-wage line.

This would require a sustained commitment by both governments and business to regularly calculate and then pay a living wage for Edmonton in all sectors based on the definition of poverty used by the task force.

[1] The Leger poll results showed that 36% of Edmontonians define poverty as not being able to afford the basic necessities of life. 30% said it is about not having enough food or no food; 20% say it is about homelessness; 17% say its about unable to afford housing or lack adequate housing; 12% say its about lack of money or no money, 11% say its about low income and 10% say its about living below the poverty line.

[2] The Edmonton Social Planning Council has estimated a higher living wage of $16.14/hour (with benefits) and $17.29/hour (without benefits). Using this higher living wage figure would imply there are even more Edmontonians living without a living wage than the $15.00 Alberta average used in my calculations. Because I have no estimates of actual numbers of Edmontonians living at or below the $17.29/hour living wage I was unable to estimate how many additional Edmontonians would qualify for a living-wage top-up.

[3] Tracking the Trends 2013. Edmonton Social Planning Council

[4] According to the endpovertyedmonton.ca website an estimated 123,700 Edmontonians (aged 15 years+) working full-time earn less than $15/hr. Our estimates show 128,900 working Edmontonians (15 years+) working for less than $15/hr and 103,200 (20 years +).

[5] Tracking the Trends 2013. Edmonton Social Planning Council

[6] Edmonton Social Planning Council. Profile of Poverty in Edmonton. January 2015.

[7] By contrast, Dauphine Manitoba in the late 1970s was the first municipality to attempt to ‘eliminate poverty’ by through a living wage policy by topping up those adults who qualified for a top-up of their current incomes (which they called a mincome). Roughly 33% of the adult population qualified for a mincome. The average cost per recipient of the mincome in today’s 2013 dollars would amount to $16,094 per adult which is more than twice as much as would be necessary to achieve the top-up for Edmontonians living below a living wage.

[8] Poverty Costs, Vibrant Communities Calgary and Action to End Poverty in Alberta, 2012. My estimates are based on the ratio of Edmontonians living at or below LIM (111,497) in 2011 and Albertans living below LIM (304,000) in 2011; this amounts to 36.6% of Albertans who live below the poverty line who live in Edmonton. This figure is applied to the estimated $7.1 billion cost of poverty for Alberta.

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