(The first article on minimum wage explains how we got one, Unions describes Canada’s healthy middle class, and this article says minimum wage is basically a trade-off between inflation and ethics.)
The standard argument against minimum wage is that it causes unemployment but that’s not the point. Higher minimum wage is a question of ethics that always results in inflation, which may cause unemployment—that’s the point.
For example, take food. If restaurants suddenly increase their prices by 20%, people will initially eat it and thereby have less money for everything else. This “less money for everything else” indirectly affects employment in other industries. But in time, people will stop eating out so often, which affects restaurant employment directly.
Elasticity
The difference between direct or indirect unemployment is elasticity. If the price of water goes up, you’ll continue to buy the same because you can’t avoid the usage. So direct employment within the water company remains the same. Unemployment only shows up in other industries. But based on elasticity, the example could look different. For example, if the price of balloons skyrockets, you’ll probably avoid the extra cost by going after some party favour that’s less expensive—putting balloon makers out of work.
In theory, this “less money for everything else” gets offset by those receiving higher minimum wage. Extra money earned gets spent creating new jobs in other areas. And in theory this makes sense, but it depends on the industry and the economy in general. Raising wages into a strong market usually results in only inflation. Doing it during a downturn typically causes job loss. Governments must be strategic over when they pull the trigger. (And cost changes can’t be done too fast. Consumers need time to adjust.)
Ethics
Minimum wage was initially legislated in the early 1900s because of worker uprisings and the global threat of communism. Back then, it was designed for the middle class. Today, minimum wage applies more to young people entering the workforce and low-skilled workers happy to get by. Currently, it’s being reinterpreted to reflect society’s values. Sure cheaper burgers are great but not if those cooking them have to suffer.
There’s always been a balancing act between wages for the few and prices for the many. If we lower the cost of teachers, doctors, nurses, and the military, the entire population would pay less in taxes. If we increase those salaries, everyone has to pay more. This balancing was initially left to the market but that’s now been abandoned in some cases for two reasons:
- Ethically, society doesn’t want anyone to earn below subsistence wages.
- Salaries for occupations like teachers, doctors, nurses, and the military are provided by government so, in these cases, there really isn’t a market.
Who and how much?
Now that we’re dealing with ethics, who is minimum wage for and exactly how much are they allowed to spend? Is it teenagers living at home? If so, make it low to get the buggers out of the house. Single people living on their own? Is it to support a family? And if it’s to support a family, is the mom allowed to colour her hair? at a salon? Can dad join a gym? Are the kids expected to attend the high school trip? Can they own a pet and go on fancy vacations? Hard questions needing real answers.
The government doesn’t provide expected household budgets but the figure can be ascertained using a reasonable number of working hours per week. If minimum wage is $12 per hour and you work 35 hours per week, you’ll be grossing around $22K per year. Great if living at home; insufficient for a family of four (let alone a dog).
Cultural inflation
Everyone’s heard of the consumer price index. The basket of goods that tells officials whether prices are going up or down. Does it take into account cultural change? Like when cellphones were invented, did the government add in the extra cost? How about internet charges and cable TV, or pets and vacations? If the price of essentials remains constant, do we factor in the societal pressure to not buy everything on sale?
And there’s a difference between essentials and luxuries. What’s best for lower income people is to keep the price of essentials down. If you chose some $800 designer purse, great, but increases in the price of food and shelter are killers for those trying to get by. In theoretical countries, workers in essential industries act like volunteers to achieve this goal. It’s like joining the military or signing up for missionary service. Youth donate time to work at the gas plant so everyone can live on the cheap. Then if you want more, work more.
Summary
No matter how you cut it, raising the minimum wage isn’t a slam dunk. Higher labour costs lead to inflation and economists have always known this. This means customers get less for their money. And when business makes less it affects employment—either directly (if goods are elastic) or indirectly.
Raising wages into a strong economy has no ill effect since prices are going up anyway. Plus people already have a job. It just keeps low-paid workers on pace. Not an increase in standard of living. But if the collective wish to better one group’s quality of life for the sake of ethics, they’ll have to eat the inflation this causes by continuing with their purchases. That’s the deal.
And there will be winners and losers. Winners include kids making french fries and immigrants who save money. Losers are the classes affected by consequential inflation, those in need of any ol’ job, and businesses dependent on price. Staying the same are folks who waste their paycheque anyway. Their excess will only go to inflated items like fast food and things they still can’t afford—not RSPs.
The left resolves the argument at the sight of ethics. They never consider the harm, only the good. But low wages allow the marginally skilled to hold jobs and not every company can raise its prices. Plus, minimum wage can be destructive when the economy tanks. But no matter how you vote, society has to answer the big question: who is minimum wage for? If looking at numbers, it’s not for raising a pet loving, trip minded family. It’s for immigrants, young people entering the workforce, and low-skilled workers happy to get by. And just so you know, government already subsidizes those who can’t earn more. (I know a guy who gets $2-700 per month based on what he makes. He’s been to Vegas five times.)
In the end, it’s a complicated issue that shouldn’t be ignored. Lefties have decided to go with benefits over costs and they may be right. We just shouldn’t be naïve about it.
Note: Here’s a discussion on C-SPAN. The bearded left-winger is useless but the French lady is good once she gets going. I also liked the first caller.