Saturday, October 08, 2016

It's About Sharing The Wealth

On October 1st, the minimum wage went up in Alberta, Saskatchewan, Ontario and Prince Edward Island. It was Alberta's increase that caused a lot of howling. Alan Freeman writes:

Following through on an election promise, the NDP government there is raising the minimum wage to $15 an hour by late 2018 on an incremental basis. This week’s raise to $12.20 amounted to a rise of $1, or more than 8 per cent over the previous level, and leaves Alberta with the highest provincial rate. (Nunavut, at $13, is higher still.)

The business lobby -- predictably -- was apoplectic:

Restaurants Canada, the industry lobby, claimed that 78 per cent of its members in the province would cut hours and 50 per cent would lay off workers, based on a survey of members.

Express Employment Professionals, a temporary help agency, said a 10 per cent increase in the minimum wage could cut national employment of minimum-wage workers by up to 20 per cent.

The Canadian Federation of Independent Business (CFIB) claims that the $12.20 hourly wage could lead to up to 50,000 job losses in the province. That’s quite the alarming prediction, since there are only 60,000 workers currently earning minimum wage in Alberta.

And the CFIB, always looking out for the best interests of low-wage employees, also warned ominously that once the minimum wage goes up to $15 in Alberta, a full-time worker at that rate will have to pay $700 a year in additional provincial taxes.

Recent studies indicate that raising the minimum wage doesn't bring on Economic Armageddon:

In an oft-cited U.S. study, Princeton University economist Alan Krueger looked at the impact on fast-food employment of the 1992 increase in the minimum wage in New Jersey. He conducted a telephone survey of fast-food outlets in the state and in neighbouring Pennsylvania, where the minimum wage was unchanged, before and after the wage hike in New Jersey. He found no discernible difference in employment in both states.

John Schmitt, an economist with the Center for Economic and Policy Research in the U.S., sought to explain why modest increases in the minimum wage have little impact on employment. Surveying a raft of studies, he found that employers can opt for alternatives that don’t necessarily mean layoffs. They can raise prices. They can cut hours. They can reduce pay or bonuses for higher-paid employees or managers. They can also take measures to improve productivity by using labour-saving devices or insisting on better performance from employees. Or they can accept lower profits.

Schmitt adds that employers also can benefit from a minimum wage spike — because when wages go up, employee turnover declines. Better-paid employees are more loyal employees. Lower turnover leads to a reduction in training costs.

Henry Ford proved a hundred years ago that raising employee wages can be good for business. He realized that, if his business was to survive, he would have to share his wealth.


zoombats on Georgian Bay said...

keeping wages low becomes a problem if your work force can't afford to buy what they produce. What Henry Ford did, probably reluctantly, was to realize that fact. I question whether his motive was actually sharing anything.

Anonymous said...

For as long as anyone can remember, demands for higher wages have always been met with threats of job loss. The business lobby goes apoplectic every time a proposal to raise the minimum wage comes up. We're told there will be huge job losses as businesses go bankrupt or move out. But minimum wages have been raised countless times in different places all over the globe and there is still no evidence that it leads to business failures or job losses. The threats are simply a negotiating tactic dressed up as an economic theory.

Owen Gray said...

I agree, Anon. And, when governments buy into the tactic, wages stay stagnant for decades.

Owen Gray said...

I'm quite sure Ford acted out of self interest, zoombats -- not because he had a social conscience. But that's the point. Raising the minimum wage gradually is good economics.

Toby said...

The business lobby justifies excessive salaries for executives by the need to attract the best. It's ironic that the need to attract the best doesn't apply to precariat employees.

Anonymous said...

I think the same sort of arguments were made when child labour was abolished.

Owen Gray said...

The label "the best" only applies to those at the top, Toby.

Owen Gray said...

Absolutely true, Anon.