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Labour + Industry

Experts Weigh In On Five Arguments Against a $15 Minimum Wage

Despite rhetoric, a closer look at debate shows little to fear from wage increase for lowest paid.

By Jeremy J. Nuttall 12 Jan 2018 | TheTyee.ca

Jeremy J. Nuttall is The Tyee’s reader-funded Parliament Hill reporter in Ottawa. Find his previous stories here.

At the beginning of the month Ontario raised its minimum wage from $11.60 an hour to $14 — 21 per cent — en route to hitting $15 next year, and the heart rates of those arguing about the impact seem to have jumped at least as much.

Social media, newspapers and talk shows have become wage debate battlefields.

Groups against Ontario’s hike argue a $15 minimum wage will hurt the economy, cost jobs and bring other catastrophes; those who support it say it’s an overdue step forward to improve life for workers.

Leor Rotchild of Canadian Business for Social Responsibility, a business association dedicated to improving corporate social and environmental sustainability, said the discussion has turned into a political debate when it should be a business conversation.

“The idea of distinguishing yourselves as a society that is doing business in the way that a twenty-first century country needs to be doing business; that’s really a conversation we all need to be having,” Rotchild said. “We need to move in that direction together.”

The future for business in developed countries includes better wages, he said, and Canada can’t try to be the country with the lowest wages, because it’s a battle we can’t win.

At the same time, Rotchild said the concerns of businesses as they make the transition shouldn’t be dismissed.

He predicts higher minimum wages will force Canadian business to be more innovative.

“It really is ultimately good for business,” Rotchild said. “Not only that, it’s contributing to Canada’s overall competitiveness.”

But Rotchild’s even-handed approach to the issue seems rare, as columnists, Twitter users and Facebook posters leap into the debate searching for foes to vanquish. Many established media outlets have printed columns opposing the wage.

The Tyee took a look at some arguments against the wage and spoke to labour experts to get their take.

Argument 1: Minimum wage earners are already paid what they’re worth

Not true, said the federal New Democrat’s former labour critic and current MP Alexandré Boulerice. (Current critic Sheri Benson was unavailable.)

If workers can’t live above the poverty line working fulltime in a G7 country, they aren’t being paid what they’re worth, argues Boulerice.

Their poverty is subsidizing those above them, he said.

“Workers should have a decent living wage,” he said. “People who are asking for help for food every month is increasing and it’s not only people on welfare or seniors, it’s more and more poor workers.”

A report from Food Banks Canada said food bank use was up 28 per cent in 2016 compared with 2008, with nearly one in six households using food banks categorized as “working” ones.

It blamed a growing number of Canadians at jobs with low wages and precarious work for the increase.

But the number of workers below the poverty line isn’t the sole indicator Canadians are underpaid, Boulerice said, Canada has seen a productivity surge from its labour force over 30 years, but wages haven’t kept up.

A report by the Canadian Centre for the Study of Living Standards examining real wages and productivity from 1976-2014 confirmed low-end Canadian wages have not kept up with productivity gains.

So the more productive workforce hasn’t been getting a share of the gains, Boulerice said. Instead the wealth has gone to those at the top.

Argument 2: Prices will rise

There’s no guarantee prices will automatically rise as $15 wages are introduced, says University of British Columbia industrial relations expert Mark Thompson.

In some industries the market won’t allow price increases, Thompson said. If there are increases, they are most likely to happen in the food and beverage sector, which employs many people on minimum wage, he said.

“There’s this assumption in the media that if costs go up, prices must go up. People in business will tell you they’d like it to be that way, but that’s not how it is,” he said. “If your competition’s not raising prices in a price-sensitive industry, you may not be able to.”

Even if you took a restaurant with an average meal cost of $30 there, won't be a 20-per-cent jump in price, because labour isn’t the only cost, he said. An increase might just be a couple of dollars.

For cheaper items, like fast food or a cup of coffee, the increase would likely be a matter of cents, he said.

Restaurants may also make up the difference through serving smaller portions or other measures rather than price increases, according to Thompson.

Argument 3: Small business will be hurt

Thompson said it’s conceivable the wage increase could hurt small business, but underlined that not all small businesses pay minimum wage.

Even then, he stressed, small businesses go under all the time. That doesn’t mean those businesses on the margins should stay afloat thanks to poverty wages.

“Why are we letting the employees of these businesses subsidize them?” Thompson asked. “That’s really what we’re saying. You’re paying wages that don’t let people feed themselves or have a decent standard of living.”

Small business already enjoys preferential tax rates and other public policy benefits, he said.

Thompson added there are economic theories suggesting an increase in wages could force businesses on the margins to examine other costs they might have ignored.

“If something is cheap, it tends to be overused,” he said.

Before strict pollution regulations were in place, companies saved a bundle because they didn’t have to worry about how much they were dumping in the air or water, he said. They were forced to do so by emissions standards.

Minimum wage changes mean companies relying on cheap labour to turn a profit may have to “re-organize” their businesses, he said.

Argument 4: Jobs will be lost

As Ontario rolled out its minimum wage increase, the Bank of Canada released a report saying expected minimum wage hikes across Canada could mean 60,000 fewer jobs.

A quick search online yields a pile of articles that could lead readers to believe 60,000 people will actually lose their jobs.

But as researcher Michal Rozworski wrote last week in The Tyee, media reports got the story wrong.

“First of all, the Bank is not predicting 60,000 pink slips but merely a slowdown in continued job growth,” he wrote. “The 60,000 figure is a national, annual one and represents just 0.3 per cent of total employment.”

Rozworski also pointed out the report indicated workers would still come out ahead. The 0.7-per-cent gain in aggregate wages would more than make up for the small number of working hours lost because of the increase.

Thompson said he predicts minimal to no job losses due to the increase and that the effects can’t be accurately predicted.

Argument 5: The increase will fuel inflation, erasing the benefit for workers

That’s only partially true, according to a paper from the Financial Accountability Office of Ontario, a fiscal watchdog established by the provincial government.

The FAO issued a report in September estimating the increase will raise the incomes of about 1.6 million workers. The office estimates the higher minimum wage will raise total labour income (after price inflation) by 1.3 per cent by 2019. “However, the FAO estimates that just one-quarter of the higher labour income would directly benefit low-income families,” the report noted.

Kendra Strauss, director of the labour studies program at Simon Fraser University, said the correlation between the wage increases and inflation is likely “weak” given low interest rates and today’s economy.

“The link between inflation and wages isn’t quite the same as it has been in previous decades,” Strauss said. “Inflation is influenced by so many different factors and measured in different ways.”

She said housing costs and other expenses far exceed the cost of goods likely to increase in price due to the wage hike, so most people won’t feel a significant impact and the change will have little effect on the inflation rate.

Strauss said the inflation argument is the weakest one against the wage increase, adding there are other more serious ones to consider.  [Tyee]

Read more: Labour + Industry

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