The Myth of the $15 minimum wage

MinimumWage-2015-FB (1)
(image above From BC Policy Alternatives)

By Melany Hallam

“Assume reality doesn’t exist.”

That’s the only thing I took away from the one economics class I sat through as a teenager. Beginner economics studies only one factor at a time – a situation far removed from the reality of our national economy. And this is the idea that I keep coming back to when I hear all of the arguments for and against the $15 minimum wage in B.C.

Real world economics is complicated and factors in all kinds of variables when predicting how major changes will affect our economy and each working individual. When it comes down to it, I think it’s fair to say that economic forecasting is an educated guess rather than a description of fact. And on the issue of the $15 minimum wage, economists (as well as industry associations, unions, etc.) appear to be divided almost 50/50 on whether it’ll be good or bad for B.C.

So let’s start with the facts. The province of B.C. plans to raise the minimum wage — currently $11.35 — to $12.65 on June 1. It will be increased each year on this schedule:

  • June 1, 2018: $12.65 an hour ($1.30 increase)
  • June 1, 2019: $13.85 an hour ($1.20 increase)
  • June 1, 2020: $14.60 an hour ($0.75 increase)
  • June 1, 2021: $15.20 an hour ($0.60 increase)

Ontario, Alberta and Quebec plan to do the same thing along various timelines, so there have been a lot of predictions on how this will affect everything from poverty levels to the great robot takeover (yes, that’s a real thing). Here are some of the major arguments for both sides, for and against.


assume

Employment levels for young, inexperienced workers

  • GOOD: Focusing on young workers is an inaccurate stereotype. More than 20 percent of B.C.’s workers are making less than $15 per hour. Less than a quarter of these are teenagers. There will be some job losses when the minimum wage increases. But for the majority that remain employed at $15 an hour, they will have much more money left to spend at the end of the month than before. This is win/win for everyone.
  • BAD: More inexperienced workers will lose hours or they will lose their jobs completely. The minimum wage doesn’t apply to the growing gig economy like Uber drivers, Grubhub and others which pay by the gig. As well, higher paid workers’ rates and benefits will be cut to make up for the overall increased labour costs. This is lose/lose for both younger workers and more experienced ones.

Poverty

  • GOOD: A greater increase in the minimum wage will benefit those at the lowest income levels. This hasn’t worked that well in the past because the minimum wage was set so far below the poverty level to begin with that increases weren’t large enough to make a difference.
  • BAD: Minimum wage increases haven’t made a difference to poverty levels in the past. Many families below the poverty line are not actually working minimum wage jobs, and many people working minimum wage jobs are not considered poor since they’re more likely to be a secondary income earner in their household. A better way of fighting poverty is to offer targeted tax credits.

Small business health

  • GOOD: A higher minimum wage will mean less employee turnover and less employee absenteeism for businesses. Jobs will be more stable and businesses will spend less time and money on hiring and training staff.
  • BAD: Businesses will have to cut staff (especially inexperienced workers), cut staff hours and delay expansion plans in order to deal with increased labour costs.

Price of goods and services

  • GOOD: Businesses know that they will have to keep their prices down in order to keep and grow their market share. The $15 minimum wage won’t affect prices significantly.
  • BAD: Businesses will have to increase prices to pay for higher labour costs and workers’ wage increases will be cancelled out.

Automation (robots and artificial intelligence instead of humans)

  • GOOD: It’s not possible to replace human workers with robots in a large number of jobs, particularly in the service industry which is where most minimum wage jobs are. In addition, the cost of automation for small businesses would be astronomical – much greater than just paying their employees a $15 minimum wage.
  • BAD: Automation comes in many forms. Retailers and hospitality businesses will find ways to automate processes and customer service will get worse.

The economy

  • GOOD: The economy will grow overall. Businesses will be more productive, better paid workers will spend and save more and poverty levels will decrease.
  • BAD: The economy will shrink overall as businesses find ways to automate and outsource. Youth unemployment will go up and there will be fewer opportunities for those with disabilities and language barriers.

I suppose reality may lie somewhere between the two positions – your guess is as good as mine. Only time will tell.

————-

Further reading on arguments for and against the $15 minimum wage:

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