Financing Human Capital Development By Increasing The Minimum Wage: Evidence From Canada

Abstract

This study provides empirical evidence that using the minimum wage as a tool to generate extra taxes to establish a fully publically-funded higher education system is a harmless approach to boost funding for human capital development without changing governments’ spending priorities or raising current tax rates.  The paper proposes a method to finance human capital development through higher education by generating more income taxes from a higher minimum wage and through an effective link of the minimum wage to the Consumer Price Index (CPI) in Canada.  The paper also argues that indexed minimum wage adjustments will help in fighting poverty, maintain an acceptable living standard for minimum wage workers, reduce dependence on government subsidies, and make-work more attractive.  The paper concludes that using minimum wage adjustments as a tool to generate tax revenues and fund higher education could be an effective fiscal tool and could be considered a ‘safe political instrument’.