Higher Minimum Wage: More Gain than Pain?

The debate about having a living wage has many voices. A colleague recently shared a public letter that a chef wrote to the Premier, expressing how a minimum wage of $15.00 per hour would jeopardize his plans to open a restaurant. He makes many excellent points and does so in clear and respectful language.

My colleague also suggested I remember that in Edmonton we have far more small businesses than large corporations and the former may be hard pressed to survive such a rise in the minimum wage. I am sure small businesses will be impacted, which very well may call for an innovative way to introduce a new way of delivering a minimum wage, perhaps in gradations, or by age of the employee.

But also as I wrote in my previous posting, I think there a point where the subsidies our governments provide directly to the poor (transfer payments, child subsidies), also are a type of subsidies for profitable businesses who keep wages below what they should be in order to boost profits for a minority of the population.

There are many, many articles in our newspapers and many statements put out by groups like the Chamber of Commerce that offer dire warnings about increasing the minimum wage. Lost jobs, higher consumer prices, bankrupt businesses, and smaller profits that will hurt the economy are among the warnings. These warnings are often attached to projected numbers of jobs lost, which often don’t seem to be based on any real research.

There is a growing number of research reports that indicate these warnings and fears are unfounded or at least far less severe as some make them out to be. For example the Canadian Centre for Policy Alternatives released Dispelling Minimum Wage MythologyHere are two excerpts:

There are other reasons why higher minimum wages will not generally translate directly into reduced employment,…First off, an increase in the minimum wage will translate only partially into an increase in the average wage, since minimum wage workers, and those better paid workers whose wages are still linked to the minimum make up only a portion of total employment.

A higher minimum wage is shown to be associated with higher labour productivity for several potential reasons, including greater loyalty and work effort by better compensated workers, more attention to performance standards by employers, and more investments by employers in innovation and technology instead of relying on cheap labour as their core business strategy. Another benefit of a higher minimum wage is documented reductions in labour turnover, which leads to lower recruitment, training, and retention costs for employers. All of these factors imply that any final increase in nominal unit labour costs facing employers will be much smaller than the initial increase in the statutory minimum.

The CCPA report is worth a read if you are serious about considering the potential pros and cons of higher minimum wages. Much of what is there can be applied to the Living Wage debate.

In 2013, The New Yorker published The Case for a Higher Minimum Wage. While their data is based on experience in the United States, here is an interesting quote from the story:

… [T]here is no obvious link between the minimum wage and the unemployment rate. During the nineteen sixties, when the minimum wage was raised sharply, unemployment rates were sharply lower than they were in the nineteen eighties, when the real value of the minimum wage fell dramatically. If you look across the states, some of which set a minimum wage above the federal minimum, you can’t see any sign of higher rates leading to higher unemployment. In Nevada, where the national minimum of $7.25 an hour applies, the jobless rate is 10.2 per cent. In Vermont, where the minimum wage is $8.60 an hour, the unemployment rate is 5.1 per cent. What these figures tell us is that other factors, such as the overall state of the economy and how local industries are doing, matter a lot more for employment than the level of the minimum wage does.

The article goes on to say that  “there are also a number of studies that show minimum-wage laws having no effect at all on employment, and even some studies showing a small positive effect.”

What to do about a minimum wage or a living wage is not an easy challenge. We want a strong economy, but one that benefits a minority in lopsided ways is not, I suggest, a sustainable economy. The more economically vulnerable people become the less able they are to be full-participating consumers. In other countries where the minority benefit far more than everyone else, we see increased polarization and intolerance, more prison sentences given to the poor and struggling, more health problems for the majority, and so on.

For those who “side” with the business argument against the minimum wage or a living wage because such programs will hurt business, how do you explain to the thousands and thousands of people earning less than they can live on how the economy benefits them as is?

More food for thought.

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