- 6% of gains from minimum wage work are lost to taxes, contributions, and benefit reductions in Quebec.
Montreal, February 9, 2023 – The federal and provincial governments should make the reduction in social benefits more gradual in order to encourage employable welfare beneficiaries to join the labour market, concludes an MEI study published this morning.
“The steep taxes and benefit reductions discourage recipients of social assistance from joining the labour market,” says Jason Dean, associate researcher at the MEI and author of the study. “By making the reduction in benefits more gradual, the federal and provincial governments would make the prospect of working more attractive.”
Based on data from 2020—the most recent year for which final statistics are available—the author calculates that a Quebecer working full time at minimum wage would earn $25,414 per year.
This same Quebecer would lose $16,112 to taxes, mandatory social contributions, and the loss of specific benefits. The net gain, compared to staying on welfare, would therefore be $9,302, or $4.61 per hour worked.
For this worker, the participation tax rate—the portion of one’s salary eaten up by taxes and lost benefits—would be 63.6%.
The economist recommends reducing the social benefit clawback rate by half in order to encourage employable social assistance beneficiaries to join the labour market.
“The more of one’s employment income one gets to keep, the more attractive it is to work,” says Mr. Dean. “Unfortunately, taxes and the quick reduction of benefits in Quebec mean that there is an income level at which working hardly seems worth it.”
The economist estimates the pool of employable people living on welfare at over 348,000 in Canada, of which nearly 100,000 are in Quebec.
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The MEI is an independent public policy think tank with offices in Montreal and Calgary. Through its publications, media appearances, and advisory services to policy-makers, the MEI stimulates public policy debate and reforms based on sound economics and entrepreneurship.
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Senior Director, Communications