The truth about minimum wage

Posted By: John Moore · 2/1/2014 9:15:00 AM

Raising the minimum wage will always provoke a public debate because people on the left think the MW is the most powerful tool they have to fight poverty and people on the right are opposed to any and all government interference with  free markets. They are both wrong. But the provincial Liberals were right to raise the minimum wage this week to catch up with inflation. After all, if CEO's got a 27% raise in 2010 alone, why should the lowest income earners get 7% over the last four years?

Those who oppose raising the MW lean heavily on old research. For the last 25 years paper after paper and now meta studies of those papers find that raising the MW has little impact on employment. Yes, a study handed in to the Ontario government predicted "negative impact on employment". What that study's fans wont admit is that it showed the same negative impact as all the other studies which is to say "minimal" to "negligable". Employers will tell you they can't afford it but what they really can't afford is to get by on fewer employees. Fast food restaurants and coffee shops can't to slow down service or they will lose customers. Retail outlets rely on their workers to drive sales. People buy more when they are personally engaged. 

The other reason raising the MW has almost no impact is because most research suggests that the rate is so low it's roughly the same as the baseline wage employers would have to pay anyway. 

But when it comes to the MW debate it's helpful to consider other angles. Walmart is famous for paying minimum wage (and then denying it) and in the recent past it had a 50% annual turn over in employees. How much does it cost to interview, hire and train these employees? And if they hate their jobs that much how hard are they working to sell and upsell clients? Walmart has been on a slide in recent years and is currently being outperformed by retailers that pay well above minimum wage making it clear to their employees that they are more than a negative line item. 

I said at the opening that the left is wrong about the MW as well. That's because raising it does little to lift people out of poverty.  Raising the wage modestly improves the lives of those earning MW but it has never been a great tool for changing the economic outcomes of families.

What Ontario has done this week is good for labour and good for business. Workers will keep up with inflation and employers will be able to plan ahead for predictable wage increases. 

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  1. Greg posted on 02/01/2014 10:38 AM
    I think it is a good move to tie MW with inflation. It only makes sense that if the gov't is going to mandate a wage that it increase with the cost of living. I don't have a problem with Wal-Mart paying minimum. What I do have a problem with is keeping employees at 38 hrs a week so they don't have to pay benefits. That is a company that cares not a wit about its employees. I love the Costco model. I have 2 friends who work there and they can raise a family comfortably on their pay. It shows in the attitudes of the employees too. Always helpful and friendly. I know not everybody can shop at Costco and that discount stores such as Wal-Mart are a good place to find bargains - it just shouldn't come at the expense of the front line workers.
  2. private posted on 02/02/2014 02:42 PM
    they should force employers to train employees properly (ie, 3 months) and create a quota across all workplaces whereby all employers should hire minimum 10 percent of workers with no work experience and ceos and upper management pay should not be more than 30 percent higher than the lowest paid worker across all companies, Its time for Equity in companies..
    1. William posted on 02/02/2014 09:47 PM
      @private It's time for you to get a dose of reality. If upper management wages were only 30% higher than the lowest paid worker there would be no reason to aim higher, no reason to take a risk and certainly no reason to higher absolutely anyone.
    2. Frankie posted on 02/04/2014 12:47 PM
      @private You must miss the former Soviet Union.

      Ever wonder why socialism is collapsing virtually everywhere?

      Do you actually expect management/owners to take the risks associated with their positions if they're only paid 30% more than the lowest paid worker?

      That would mean the CEO of Wal-Mart (a multi-billion dollar business) would only be paid $ 33,000 per year if the lowest worker is paid $ 25,000.

      The NDP must be way too far to the right for you. I believe North Korea may be the only place where you'll have a chance at finding true labour happiness.

      Have a good trip!
  3. karen posted on 02/02/2014 05:47 PM
    Seniors are starving to death Mr. Moore, in silence. I see an 80+-year-old man in my nieghbourhood, very gaunt, searching for liquor bottles to return.
    1. 1231231 posted on 02/03/2014 12:01 AM
      @karen Great he probably should have saved more for his retirement. Personal responsibility and all that.
  4. Andre Gaudreault posted on 02/04/2014 04:52 AM
    Good points on both side of the spectrum. There will not be job lost, The fast food restaurant is not going to slow down the servings by bringing in less staff; they will raise the prices of their services or product to make up the difference. As well, a raise of $0.75 an hour or $30.00 gross a week of 40 hours, not convinced it changes the life of many people. And that it is even more true if some of the services or products they buy just went up due to a more expansive workforce.
  5. Frankie posted on 02/04/2014 12:33 PM
    If a company is well run as Costco is, treating their staff reasonably and paying them a good wage will continue to translate to higher sales and therefore higher profit.

    If Wal-Mart is well run as it appears to be, their wage model of paying minimum wage and enjoying a 50% turnover rate may also translate to higher profit despite the poorer customer service.

    Both models work; it depends on the market they're going after as well as their competition.

    I personally prefer the Costco model.
  6. Murali posted on 02/06/2014 01:20 PM
    We have solutions in North America for our guilt. Fair trade certification for a cup of coffee to wash our guilt when a 3rd world worker is paid 1$ a day. Pretend to reduce carbon footprint by blending gasoline with 10% ethanol; not realising we had extracted this ethanol form Corn, which could have fed millions of hungry souls. Further, rich and powerful have manipulated the system in place to create vast amount of wealth for themselves and wash their guilt with another system called Philanthropic Colonialism.
    Now WageMark certification has been invented with an arbitrary ratio for the salaries of CEO to average worker to wash their guilt.
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