Toward A $15 Minimum Wage

The minimum hourly wage in 2017 in Nova Scotia is $10.85, up 15 cents per hour from the previous year. That is not enough to live on, and at that rate of increase it never will be. Just as important, it is not enough to slow down the exodus of people from rural Nova Scotia.

A $15 minimum wage would influence more people to join and remain in the workforce and provide a greater incentive to get off welfare. It will produce more tax revenue for government. It will reduce income inequality.

Advocates of minimum wage hikes make some dubious arguments. For example, it is argued that low income earners will spend more of their income than higher income people. That is of negligible significance for a Tim Horton’s customer, and not much more for others.

A second argument is that higher minimum wages magically cause greater average productivity. They create the need but not the means. They force employers to find ways to achieve productivity improvements; those who don’t frequently fail.

On the other side, the evidence that raising minimum hourly wages hurts employment is not compelling.

Australia, which, like Canada, has an economy significantly dependent on resources, has a national minimum wage of A$18.27 (Australia’s currency is worth about the same as Canada’s). Its May unemployment rate was 5.5%, compared to Canada’s 6.5%.

The USA, with an unemployment rate of 4.3%, has a federal minimum of US$7.25. Many states have higher minimums; California is beginning a transition to US$15 by 2022.

Seattle is two years into a transition toward a US$15 minimum. A study by the University of California, Berkeley says that it has done no harm to employment. A study by the University of Washington reaches the opposite conclusion. Though much quoted in the media, neither study has been peer reviewed and neither makes a convincing argument.

Unlike the absurd proposals for universal guaranteed annual incomes, a well-designed gradual transition can have a useful impact on the economy. Let’s look at some sectors:

  1. Restaurants and other hospitality businesses: Where tips are involved it is appropriate that the employer count them toward achievement of the $15 goal, which is already achieved by many mid-range and higher end restaurants if tips are included. When the tips don’t amount to much, the cost of the increased minimum may add a few cents to the cost of a cup of coffee or a few dollars to the cost of a hotel room.
  2. Resource extraction: These industries typically pay higher wages for most workers, and labour costs are not a dominant portion of their expenses.
  3. Fisheries: Employees on a fishing boat are not covered by minimum wage rules, but there could be an indirect impact on boat owners. Processing plants do not typically pay as much as $15 per hour, so the lobster fisherman may receive a little less per pound for his catch to make up the difference, which is likely to be less than 25 cents per pound.
  4. Retail: Electronics, fashion, and accessory shops are already suffering from online competition. It’s not just Sears that is hurting. Higher minimums should not matter much to grocers, corner stores, or gas stations. Since they are all in the same boat, they should be able to pass costs on to their customers.
  5. Manufacturers and processors: For many rural employers, the biggest challenge is getting enough staff. At $10.85 per hour, they may eventually be unable to fill vacancies as their area depopulates. Being able to afford higher wages can be a big win for their long-term viability. Getting there will require investment in productivity.

Here is a possible way forward for Nova Scotia:

  1. Increase the minimum wage by 83 cents per year for 5 years, reaching $15.00 in 2022. That is about 5% per year above inflation.

    For restaurants where labour is about 30%-35% of total costs, it means a 1.5% annual increase above inflation. Absorbing that with some combination of efficiencies and price adjustments should not be difficult.

  2. An employee’s share of tips, and employer contributions toward employee pensions (other than CPP) and health benefits, should count toward the minimum.
  3. Invite manufacturers and processors impacted by the policy shift to identify themselves, especially those outside of Halifax. Work with them to find investments in technology, tools, and training that would add to the productivity of their employees. It is a win if the consequence is fewer people making more money with financially stronger employers. It is even better if the employers’ improved competitiveness enables renewed growth, and hiring. The payroll rebate program is wrong for this context. What is needed is support for investments in capital equipment and training that will improve productivity.
  4. Monitor the impacts as they are happening and be willing to amend the schedule of increases if the evidence points to a different pace.
  5. Consider a limited initial implementation, such as starting only in Halifax, or allowing rural manufacturers and processors custom timetables. Consider a lower level minimum wage for young entry level employees in their first year.

Achieving a materially higher minimum wage has clear benefits for government and for employees. It can also help employers if it helps them retain staff that have gained experience, and if they become more productive.

It will nevertheless be a policy mistake if affected processors and manufacturers are reluctant to make the needed investments to improve productivity. Any policy development must include their active participation.

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