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Every week (or so), two Torontoist staffers square off to debate an issue that's important to our city. We invite our readers to join the debate in the comments section following the post.
In the last few weeks there’s been a campaign by the provincial NDP and their supporters to increase the minimum wage in Ontario from 8 to 10 dollars an hour, and opinions are deeply divided on what for many is a very emotional issue. Read on as two Torontoist writers add their two cents to the debate.
KEN HUNT Every debate about raising the minimum wage winds up being a debate about economics. This debate will be no different, but before we launch into an economic discussion, let’s start with what should be a guiding moral principle in our society: Any person who has a year-round full-time job should not be living in poverty. It’s really as simple as that. Everything else is just noise: one economic theory against another, one study against another study, a debate over definitions and semantics. With all that noise, it’s easy to forget our principles. If a business really can’t make a profit without keeping its own employees in poverty, then I don’t think it’s too bold to suggest that maybe that business shouldn’t exist. Let those business people find something better to do with their time, money, and brains. Now, onto the economics… Some claim that increasing the minimum wage will create unemployment. A number of studies suggest otherwise. In 2003, the minimum wage in San Francisco was suddenly raised $2 per hour, from $6.50 to $8.50, a 30% increase. This study found that, despite the sudden raise, there was no discernable effect on unemployment. This study in New Jersey and Pennsylvania also found that minimum wage increases had no effect on unemployment, and even a quick survey of various minimum wage increases plotted against unemployment numbers shows no correlation. What seems clear though, even from studies that do find small rises unemployment, is that this is a pretty minor risk. When you compare that risk to the benefits of paying people a decent wage, especially at a time when we are experiencing record-low unemployment, it seems like no contest. Another argument that invariably pops up in these debates is that a minimum wage increase will cause inflation. This shows a fundamental misunderstanding of the causes of inflation. Inflation is caused by a society-wide increase in the supply of money or credit. Raising the minimum wage only redistributes money within society, and therefore is inflation-neutral. The Cato Institute (a libertarian think-tank that is opposed to any minimum wage) does a good job of explaining the fallacy of cost-push inflation in this scenario. Of the 200,000 Ontarians earning minimum wage more than half are students, but we are not just talking about them. We are talking about the 1.2 million Ontarians who work but earn less than $10/hour. A lot of businesses boast that they pay above minimum wage, but by that they mean fifty or seventy-five cents above minimum wage, not a living wage. Ontario’s most recent Hunger Report tells us that 17% of food bank users in this province are employed. This is a shameful situation and we have a moral duty to correct it. A job should be a way out of poverty, not a guarantee of it. Many of us know struggling families with one or both parents earning less than $10/hour. We don’t need a study to tell us that those families will benefit from every extra dollar they receive. Just before Christmas Ontario MPPs gave themselves a 25% raise. The $88,771 they were getting just wasn’t fair and they worked around the clock to ensure that the problem was fixed. Ontario’s working poor deserve the same treatment. | PATRICK METZGER The drive to raise the minimum wage to $10 an hour is a cynical ploy by grandstanding politicians to leverage an issue which appeals to everyone’s sense of compassion. After all, anyone who doesn’t support a better quality of life for poor working mothers has got to be some kind of fiend, right? The problem is that a big jump in the minimum wage is the kind of simplistic “solution” that looks good in a headline, but which doesn’t work as advertised. Adjusting minimum wage to combat poverty is akin to solving a cockroach infestation with a sledgehammer – a dramatic and costly approach that will miss most of its intended targets. The principal problem can be summed up succinctly: most minimum wage earners are not poor, and most poor people do not earn minimum wage. The connection between hourly wages and family income is tenuous at best. Statistics reveal that 60% of minimum wage earners live with their parents or other family members who are the primary source of household income, and that a full third are students working part-time. Less than 17% of people earning minimum wage are employed full-time and supporting themselves or a family on their pay. Thus, a raise would overwhelmingly accrue to young people working part time and living in households with multiple incomes. It does nothing for the vast majority of the poor, whom the data show do not earn minimum wage, but are poor either because they have no income at all, because they don’t get enough hours at work, or because they have large families to support on a single income. While there’s nothing wrong with a hard-working middle-class teen making a little extra money, it’s an expensive way to assist a very small proportion of the underprivileged. How expensive? The immediate cost to business would probably be in the 2 – 3 billion dollar a year range. However, there’s also a human cost to those the move is intended to help. Consider that 60 years of studies on minimum wage have found that increases in the minimum wage are at best employment neutral, and that larger increases (to 49% or more of the average wage, as here) raise the unemployment rate. That’s an unsurprising conclusion –if the minimum wage is raised by 25%, small businesses operating on slim margins (who still employ the majority of minimum wage earners) will have to squeeze more productivity out of fewer workers in order to stay competitive. Considering that a minimum wage increase is one of the more useless tools in the anti-poverty kit, why is it suddenly so popular with politicians? For one thing, the cost would be absorbed by private business rather than government. In addition, the concept sounds good if you don’t know the facts, and supporters can accuse opponents of being heartless and indifferent to the poor. The language of emotion buys a lot of votes. That kind of thinking simply muddies the waters. The real goal is to raise family income, and minimum wage is a side issue which diverts public attention and resources from that objective. There are all kinds of measures, such as housing subsidies and income supplements for the working poor, which actually target those in need and hence fight poverty far more effectively than a minimum wage increase. Let’s look some of those options rather than pandering to noisy sloganeers who promote quick but ineffective fixes. |
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These arguments are both problematic.
From a purely economic standpoint, raising the minimum wage increases autonomous spending which is good, not just directly for the poor, but for the overall standard of living of every Canadian - you and I included - as the money is filtered through the system.
The "for" argument falls apart with the "well, the MPP's did it..." at the end. The MPP raise had nothing to do with fairness. Can you cite one example of someone claiming the MPP's wage was unfair? The increase was about standard employee retention. They had to pay them more if they wanted to retain them as MPP's as many will/did resign to join a federal MP campaign for more money. The province didn't want to train MPP's to be MP's. So they increased the wage to stay competitive in politics. I'd much rather have the best MPP rather than the best MPP we can afford. The analogy is horrible - and adds a huge fallacy to your argument.
The against argument makes a HUGE assumption that business pay the highest wage they can afford to while staying competitive. This is incredibly false. Supply and demand in the labour force indicates business will ONLY pay what they HAVE to in order to attract the skill level needed. When they just need a warm body, and someone is willing to work for $8, that's what they pay. Why pay someone more than they're willing to accept? Tim Horton's can afford to pay employees $15 an hour - but why would they when people are willing to work for $8? It's just bad business.
The idea that a small business operating on a "slim margin" will fail with a 25% increase in minimum wage is a completely false claim. It implies that the business will ONLY fail because of the wage. If the wage had stayed the same, the business would grow and prosper. This is incorrect. It is true that a wage increase would force business to cease operating, but only if they were headed for failure in the first place. An argument could be made that having businesses destined to fail, fail sooner - this would make the economy more efficient and reduce monetary waste on the way to an overall increase in the standard of living.
Regardless, neither argument takes into account that jobs will shift throughout the labour force. Supply and demand of labour dictates that more people are willing to work for $10 than for $8. Where a high school or college student may choose to work for $8, a mother of 3 will take a less desirable job that pays a higher rate of $10. By increasing the minimum wage, you're not shrinking the workforce, you're shrinking the student workforce. There are all kinds of implications there. What kind of a drain will that put on the economy if the most lucrative segment of society has less disposable income?
Neither argument takes into account the physical location defines poverty. Of the 1.2 million Ontarians making less than $10, how many are a) not students b) not living in the GTA? You can make a rather nice living on $9 an hour in a small town (pop. 1000) where a 1 bedroom apartment can go for as little as $300. The increase of the minimum wage may not be required in that small town. Toronto is the largest city, but the majority of Ontarians don't live in Toronto. The implications go beyond what's needed here. A full time job at $9 would yield approx. $1000 a month. With a 1 bedroom at $400, that's roughly 40% of income spend on shelter. In Toronto, a one bedroom average of $750 would be roughly 50% of income spent on shelter of a person making $12 an hour. Will raising minimum wage to $10 solve that problem? Are we now forcing small towns to overpay? In a small town, the implication of raising minimum wage will have a much larger ripple effect.
So what are we really talking about accomplishing?
The argument that simply giving people more money takes them out of poverty is unrealistic. Poverty is more than what we define as an acceptable amount of earnings. At some point you have to factor in lifestyle and education. Both of which have a much larger impact on removing poverty than simply handing out more cash. Did the poverty rate decline in San Francisco? What is defined as a success? Short run removal of poverty with an increase of poverty in the long run as the market adjusts? What is a realistic target?
(Note: I'm for raising minimum wage.)
"The idea that a small business operating on a "slim margin" will fail with a 25% increase in minimum wage is a completely false claim. It implies that the business will ONLY fail because of the wage. If the wage had stayed the same, the business would grow and prosper. This is incorrect. It is true that a wage increase would force business to cease operating, but only if they were headed for failure in the first place. An argument could be made that having businesses destined to fail, fail sooner - this would make the economy more efficient and reduce monetary waste on the way to an overall increase in the standard of living."
To suggest that business which fails due to a major change in it's operating environment must have been "headed for failure" is ridiculous. Apart from gross mismanagement, that's just about the ONLY reason why once-successful businesses fail. While every situation is different, most businesses count employee wages as their largest single expense, and a major increase will have a disproportionate impact on profitability.
The fact is that at some point wages become too high to for the business to remain economically viable. It may be $10/hr or $100/hr, but it exists - all we're doing here is haggling over the price.
That said, my principal argument against a 25% increase is not that it will put Timmy's out of business or make high school kids dangerously wealthy. It's simply that it's a lousy and ineffective way to fight poverty.
The fact is, there
The claim that small businesses will suffer from a minimum wage hike is misleading. Only 29% of minimum wage earners work for small businesses. The rest work for temp agencies, fast food chains or retail giants.
Another fact is that the CEOs of the top retailers in Canada earn more in 2 days of work than someone on minimum wage earns in a whole year.
How is that equitable? Remember, just because someone is not the primary breadwinner in their house, doesn't mean that household could not use more money!
See www dot labourcouncil dot ca for more details.
It occurs to me that I've never heard even an attempt at a rational explanation why CEOs (etc) get such a disproportionate chunk of the payroll compared to the people who, by and large, do the work.
I don't think it's equitable that Robert Nardelli got paid more for getting shit-canned from Home Depot than the last 3 generations of my family made in their entire working lives. However, that doesn't have anything to do with this discussion.
MPPs shouldn't be allowed to vote themselves a pay raise unless minimum wage also gets raised at the same time, at least by the rate of inflation.
> The province didn't want to train MPP's to be MP's.
If Ontario doesn't want to train us to be Swedes, perhaps they should consider raising the minimum wage ;)
this, to me, sounds quite similar to the lowering of GST.. just a scam to make people say "i LOVE that party!" without really thinking. the vast majority of workers, not even the minimum wage earners, will see this as a wonderful feat by the government looking out for the little guy. while yes, it does look that way, with all the things said here, it seems to be a band-aid solution that looks great on paper but won't really have any effect on the actual problem.
so, while yes, it is going to help people, it seems like there's another agenda here to increase votes.
blah.
The strongest argument against the raise is the one Mark brought up regarding geographical differences. Minimum wage in a small town wouldn't need to be as high to provide the same quality of life, and small town businesses may be less able to absorb the cost of the pay hike.
Is there any way around this? I would think that a regional minimum wage would be horrendously complicated.
so does this mean i can stop leaving tips?
Alex, the issue is not how many min wage earners work at small businesses, but how many/percentage of employees of small businesses earn min wage. Don't have a number, but this would tell you the degree to which small businesses will be hit.
RE: Minimum Wage Increase
I have a small business in Ontario that employees about 60 people yearly and 110 or so at Christmas. My business is not extremely
profitable, thus I pay some employees minimum wage. With this new proposed minimum wage, my business will not survive.
If I was more profitable, I would pay more and thus most likely get a better qualified employee. Instead I hire those who are new to the country with limited language or computer skills or those looking to work when they want (2nd voluntary income earners). Many of these people eventually leave me for other jobs or else I train them and then increase their wage as their skills get stronger.
Many of these entry jobs are entry-level light physical (pick and pack) and data work (data entry). In addition, I hire many people who could make more money but want to work flexible hours (students or homemakers who want to get out of the house - which I allow because they accept a
lower wage).
Starting today I am going to be looking to the Ukraine and India for possible data entry services. In addition, I will start considering
relocating my pick and pack operation into Atlantic Canada in the next 3 to 5 years. My lease on my warehouse comes due in 3 years.
Over the next year I will try to bring down my staff from 60 to 40 people in Ontario. If this minimum wage of $10.25 comes into effect, I will probably move all 110 jobs into New Brunswick, Nova Scotia or Alberta if their economy slows down.
I wish I would have know about this before I started my business in Ontario 10 years ago, otherwise I would have picked another province.