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The 10$ proposed minimum wage will not hurt businesses.

That’s what our friends at Relentlessly Progressive Economics argues here, citing a slew of multiple studies that have been done elsewhere. Some notable passages:

The cry from business and the right that decent minimum wages come at the cost of jobs flies in the face of the simple empirical reality that countries with relatively high wage floors compared to the median do not necessarily have low rates of employment or high unemployment….In short, the argument of the right that countries cannot have both a decent wage floor and high employment/low unemployment is simply wrong.

The whole article is a very good read and I recommend it. … and I’ll reiterate my support for a 10$ minimum wage.

 

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10 comments to The 10$ proposed minimum wage will not hurt businesses.

  • One other thing I should note. No minimum wage increase will “redistribute” corporate profits. Businesses do not accept cuts in profit, they merely cut or pass on costs to prevent any profit loss and indeed set the stage to increase profits. Since a minimum wage increase is a mandated labour cost increase across the board, businesses don’t need to worry as much about the effect of price increases on sales since all businesses will pass on some of the labour costs in the form of higher prices. Other costs will be minimized by cutting hours.

  • “Your counter example needs to take into account the last year in which the MW was raised and the rate of inflation since then to now. Take that number discount the present MW by that figure and re-run your calculations. What you will find is that those paying the MW have made out like bandits. All the ramped up increase would do is *partially* redistribute those accumulated savings into the future. So if you are going to play an adding up game at least have the stones to do it honestly.”

    The Mike Harris policy was the wrong policy. However, having said that, we cannot jump to the opposite extreme and compensate overnight without sending a shockwave through the system. I will say this: corporations may have “made out like bandits” but many small businesses did not. Again, it is easy to look at this debate and say “corporations are making huge profits so its time to redistribute” but forget about the small independent businesses who often are struggling. At least have the “stones” to look at the argument honestly by accepting there is more than one factor at play here.

    As for the inflation since the wage freeze, those wages are lost wages. Workers lost money (in terms of real dollars) but it is not the fault of the companies who simply followed the law. The fault is with the government of Ontario who instituted the minimum wage freeze. That policy is over, finished, and the effects cannot be undone overnight. Amends should be made using the five year formula I proposed above which would put wages in 2011 15 cents below what a 28% immediate increase would result in by the same year given the same inflation projections. This is the only way that makes sense for both workers and businesses (and remember I am concerned about small businesses here rather than the Walmarts and Loblaws of the world).

  • lrC

    The article concedes that modest increases in minimum wages typically result in only very small negative employment impacts, and also notes that the minimum wages we currently have are not living wages. We’re back to Square 1 from a few weeks ago. Are minimum wages intended to be living wages? Clearly, no: the wages aren’t high enough. Will raising the minimum wages significantly result in a noticeable adverse impact on employment? Theory and studies suggest so. We are left with the lame proposition that minimum wages are just there to keep people from earning too little – whatever that is.

    “I think businesses should not exist if they can’t afford to pay their employees livable wages”

    Then those businesses won’t exist, and those potential employees won’t have jobs, period. A wage floor establishes a set of people who will be more or less permanently unemployable (no-one will pay a price high enough to cover the wages and all other costs), and fiddling with the wage floor just changes the number of people in that set.

    Some people do claim (inaccurately, as it turns out) that any given increase will result in a sudden jump in unemployment, and proponents of minimum wages point out this is rarely if ever the case. People on all sides of the ideological divide here should agree: our current regimes of minimum wages have, roughly, kept minimum wages at the same level with respect to general inflation and costs of living. We see no significant rise in unemployment because all the people unemployed by the current wage floor are already there, and the historical small increases made to date do nothing to significantly change the size of the pool. It is what happens when the floor is lifted significantly with respect to the average wage that is unknown, and is predicted to be adverse.

  • Tim Webster

    Increasing the Minimum Wage to cover the high cost of living. The real cost it the high personal cost of living and community cost of living in Canada. Increasing the Minimum Wage is just avoiding the true problem.

    Do you realize that roughly 1/3 of the average net wage goes cover the cost of driving to work. The car ownership is a luxury not included in the cost of production in Asia.

    A car in Asia is a luxury.

    According to the RAC the average cost of running a new car in the UK is GBP 5,000 (US$ 9,000) per year, or roughly 1/3 of the average net wage; while the RACV suggests[1] roughly AUD10,000 per year, compared to AUD26,000 median income among all Australian adults or AUD66,000 median income among all Australian households[2]. This situation is reflected in most other Western nations.

  • Michael,

    with due respect you are being silly. Your counter example needs to take into account the last year in which the MW was raised and the rate of inflation since then to now. Take that number discount the present MW by that figure and re-run your calculations. What you will find is that those paying the MW have made out like bandits. All the ramped up increase would do is *partially* redistribute those accumulated savings into the future. So if you are gooing to play an adding up game at least have the stones to do it honestly.

  • I know minimum wage was frozen for years under Mike Harris; that was the wrong policy and it was bad for workers. Having said that, you can’t immediately counter it with a dramatic increase (28% is dramatic or at the very least “very significant”) all at once. If they phased this in over five years in 2011 you would have a minimum wage of $10.89 calculated as follows:

    Five year phase in would mean 45 cents above inflation yearly. Therefore, if the average inflation is calculated at approximately 2%, here is the yearly increase

    2007: 7.75 + .15 + .45 = 8.35
    2008: 8.35 + .17 + .45 = 8.97
    2009: 8.97 + .18 + .45 = 9.60
    2010: 9.60 + .19 + .45 = 10.24
    2011: 10.24 + .20 + .45 = 10.89

    A five year phase-in would bring minimum wage to 10.89 an hour. This is an approximate number that adjusts based upon actual inflation. However, barring a recession, minimum wage would be well over $10 by 2011 and businesses (particularly small businesses) would be in a better position to adjust to phase-in.

    Now what would a minimum wage look like if it is raised to $10.00 now with an inflation rate of 2% by the year 2011?

    2007: 10.00 + .20 = 10.20
    2008: 10.20 + .20 = 10.40
    2009: 10.40 + .21 = 10.61
    2010: 10.61 + .21 = 10.82
    2011: 10.82 + .22 = 11.04

    Therefore, the two plans differ in the end by 15 cents an hour but employment would be more secured since businesses will have time to adapt. An increase to 10.00 overnight would force businesses to cut labour costs by passing new costs on to the consumer, cutting hours, and eliminating some jobs (remember, businesses never freely take cuts to profit, they simply pass on new costs to customers and workers).

    Now of course you may argue that in the five years leading up to this the five-year phase in means workers earn less. I don’t disagree, the evidence is obvious. A worker who works 32 hours a week (many minimum-wage jobs are not full-time), would make:

    2007: 3078.40 less
    2008: 2379.52 less
    2009: 1680.64 less
    2010: 965.12 less
    2011: 249.60 less

    For a combined 8352.28 less.

    However, they would be making more than they currently would. Looking at inflation plus the promised 25 cent above inflation increase, we see the following:

    2007: 7.75 + .16 = 7.91
    2008: 7.91 + .16 = 8.07
    2009: 8.07 + .16 = 8.23
    2010: 8.23 + .16 = 8.39
    2011: 8.39 + .17 = 8.56

    This means the increased income from the 5-year plan is as follows:

    2007: + 732.16
    2008: + 1497.6
    2009: + 2279.68
    2010: + 3078.40
    2011: + 3877.12

    But if you look from the standpoint of a small business owner who relies on the profit of their business to live, and this employer had 4 employees, that means the owner would save $33,413.12 in labour costs as a result of a plan to minimize the shock to small businesses. This expense could very well make the difference between profitability and foreclosure. Small businesses in many parts of this country are struggling against corporations. A mandated 28% labour cost increase overnight could very well put many out of business. As a strong supporter of small businesses and competition in the marketplace, I see this 28% increase as something that will stifle competition by driving the smaller competitors out while large corporations are in a better position to adjust due to location (usually in cities), higher number of customers and a wider array of products (costs can be transferred over a larger area so price increases will be significantly less than in small businesses), and more employees to divide hour cuts across and thus fewer left unemployed than in smaller businesses.

    You might argue that yes I am looking from a business standpoint (in particular a small business one) rather than a personal standpoint. This is true and I will not dispute that. However, I would argue that this policy would bring about a more desirable result precisely because it would help protect small businesses. Tax cuts for small businesses and a further increase in the threshold (both most a federal focus) would also help.

    I put forward this argument to show its not about corporations. Corporations won’t have a problem absorbing these increases but the more important businesses, the small independent businesses, will struggle.

    As for “cherry-picking” of the report, let me point out some of the other points on there that I thought were quite accurate:

    “However, the consensus of even impeccably orthodox and mainstream economists is now that minimum wages set at “reasonable” levels do not have significant negative impacts on the employment of lower-skilled adults.”

    I agree. However, to simply agree is to miss the point in this case. The point here is not that we disagree on what a reasonable level is (I am for an increase minimum wage) but rather how it is to be implemented in the face of frozen wages. Arriving at the reasonable level, not what that level is, is where we disagree and this blog you cite addresses this as follows:

    “Part of the reason that the UK minimum wage has worked so well is that it has been gradually increased a bit faster than inflation and average earnings, reaching a new and much higher benechmark while still giving the job market time to adjust.”

    As for other points:

    “The latest OECD Employment Outlook – a re-appraisal of the original 1994 OECD Jobs Strategy which was very critical of minimum wages – reports that “a moderate minimum wage is generally not a problem”, can create important incentives to work for people on social assistance, and can lower the cost to governments of supporting the incomes of working poor families.”

    Completely agree there.

    “The cry from business and the right that decent minimum wages come at the cost of jobs flies in the face of the simple empirical reality that countries with relatively high wage floors compared to the median do not necessarily have low rates of employment or high unemployment.”

    Again I agree but this also misses the point. The disagreement doesn’t appear to be on whether or not to raise it but rather HOW to raise it.

    “Most of the economic studies are a little less clear on why there is little or no impact on jobs. One major reason is that minimum wages apply across sectors and geographical regions, placing no single employer at a disadvantage. At the sector and local level, it seems that higher minimum wages provide benefits as well as costs to employers – lower turnover, lower training costs, and more experienced workers. Left to their own devices, low wage employers actually pay less than they should if they really calculated the costs of a disposable workforce. Another reason for minimal job impacts is that, even if business costs increase a bit, the impact on prices is not enough to appreciably reduce demand.”

    I would dispute this claim. It is seemingly based on the UK model cited above regarding gradual above inflation increases. That is not relevant in this case if we went with the overnight 28% increase. This statement also does not reflect the realities of small businesses vs. large businesses/corporations where the ability to spread out costs are strikingly different (to the disadvantage of small businesses) and the realities of urban vs. rural where again small businesses stand to suffer as, unlike in the city, not only do they have fewer products to spread the new costs over but also much fewer customers. The statement above regarding price increases pertains more to larger stores with many more products. If labour costs increased by $1,000, it is easier to spread that over 5,000 products as opposed to 500 products (even after factoring out costs transferred to employees).

  • [quote comment=”1125″]I, like Cherniak, argued strongly against an immediate increase to the minimum wage arguing that a 28% increase overnight would be disasterous for business and in particular small businesses and rural areas. Let me cite a paragraph from the blog you provided a link for:

    “Similarly, the consensus of studies on the impacts of the minimum national wage introduced by Labour in the UK has been that it had no significant impacts on employment, and most studies of changes in US minimum wages at the state level find minimal impacts on jobs. Part of the reason that the UK minimum wage has worked so well is that it has been gradually increased a bit faster than inflation and average earnings, reaching a new and much higher benechmark while still giving the job market time to adjust.”

    That is exactly what I, Cherniak, and other leftists opposed to this knee-jerk, reactionary NDP policy idea have said. Phasing it in over a number of years through increases a bit above inflation would be the best way for businesses to adjust.
    [/quote]

    I think you’re cherry-picking Michael.. you decided to avoid the entire rest of the article… I’ll admit I’m no economist, but are you seriously telling me that a 25 cent increase in the minimum wage – what its going up now – is accurately described being increased at “faster then inflation and average earnings”??? And after its been frozen for the entire duration of the Mike Harris regime? C’mon.

    Plus, I think describing the NDP with this policy as it being “reactionary” is the wrong phrase to be using. I find their proposal very progressive quite frankly; a “reactionary” would be someone like George Will in the US who wrote there shouldn’t be ANY minimum wage at all. THAT is my definition of reactionary. I know its in vogue now by most Liberals to bash the NDP nowadays, but I’m not going to bash the proposal simply because it came from them – Its the right thing to do.

  • I, like Cherniak, argued strongly against an immediate increase to the minimum wage arguing that a 28% increase overnight would be disasterous for business and in particular small businesses and rural areas. Let me cite a paragraph from the blog you provided a link for:

    “Similarly, the consensus of studies on the impacts of the minimum national wage introduced by Labour in the UK has been that it had no significant impacts on employment, and most studies of changes in US minimum wages at the state level find minimal impacts on jobs. Part of the reason that the UK minimum wage has worked so well is that it has been gradually increased a bit faster than inflation and average earnings, reaching a new and much higher benechmark while still giving the job market time to adjust.”

    That is exactly what I, Cherniak, and other leftists opposed to this knee-jerk, reactionary NDP policy idea have said. Phasing it in over a number of years through increases a bit above inflation would be the best way for businesses to adjust.

    “I think businesses should not exist if they can’t afford to pay their employees livable wages.It means they run on undervaluing a persons work , and not demand for product and business skills. This issue is about respecting people for their efforts, which I think many businesses have lost sight of over making profits.”

    First, please define a livable wage. Second, define the “value” of a person’s work. Is there some criteria above the market forces? If so what is it? Finally, do you realize that many businesses that pay lower wages are small independent businesses of which many are struggling to survive as it is? As I have consistently maintained, while attacking corporations is one thing, we can’t forget the small businesses who stand to suffer disproportionately from mandated increased labour costs.

  • Kevin.R

    I think businesses should not exist if they can’t afford to pay their employees livable wages.It means they run on undervaluing a persons work , and not demand for product and business skills. This issue is about respecting people for their efforts, which I think many businesses have lost sight of over making profits. And might I add, that respecting ones employees goes a long way, I’m sure in most businesses the gains from low wages are lost from the losses they experience in Turnover and training costs.

  • If you want to really see businesses that have gone under, try Alberta, which because of the boom and hot economy business is crying for workers and having to pay them more and with benefits. When they can’t hire workers they go out of business….which has never happened when minimum wages have increased. So I hope businesses will complain loudly that they do not want a labour shortage, overheated economy ever again. Opps they did that back in the 1400’s and that was when England passed the first wage and price controls.

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