$15 Minimum Wage: Chapter Two

Posted July 14, 2017

Last week’s article recommended a gradual transition to a $15 minimum wage. It provoked a lot of emails; few of them were supportive.

Some pointed to a Fraser Institute study which argues that a 10% increase in minimum wage reduces employment among workers age 15-24 by 3% to 6%.The study also pointed out that minimum wage earners are mostly young people living with their parents.

This is an important and complex topic which deserves further exploration.

(1) Pace: It is the pace of change that impacts employment more than the absolute number. Australia has a very long history of government mandated minimum hourly wages, currently standing at C$17.92. Over the last ten years the average increase has been 3%, not much more than inflation. Australia has lower unemployment than Canada.

Alberta is on the way to from $10.20 to $15.00 over three years ending in 2018. Ontario’s Liberals are proposing to go even faster – from $11.40 to $15.00 in two years. Change at that pace makes it difficult for employers to adjust.

(2) Age: It is not a bad thing if 15-19-year-olds are living at home. It increases the likelihood that they are continuing their education. So not including them in the minimum wage rules beyond those applying today is the right choice. That is what happens in Australia.

But for the rest of the minimum wage earners, it is absurd to conclude that there is no problem because they are living with their parents. The very real problem is that they are living at home, not as a preference, but because they can’t afford to live independently.

(3) Services Employers: Bars, restaurants, and accommodations providers don’t compete with counterparts in other provinces or countries. The proposal in last week’s article was to increase the minimum to $15 (towards which tips and benefit programs count) over five years, about 5% more than inflation per year.

Given the share of labour costs in their expenses, this would require a price increase in excess of inflation of about 6% spread over five years.

For retailers, the needed price increase above inflation is less than 5% over five years. In both cases the employers’ competitors will be dealing with the same challenge.

This seems like it should be manageable, but it needs to be added that two experienced retail leaders who were asked question that thesis.

(4) Manufacturers and Processors: It is typical of successful operators that they have invested in equipment and training, which has allowed their employees to grow into higher value-added jobs that already pay at or close to the $15 threshold.

This makes them less vulnerable to low wage competition from other jurisdictions. It makes the jobs more attractive to current employees. Young prospective employees will see a way to escape from their parents’ basements. The communities in which they live can have better prospects.

Government should be a willing partner with companies willing to make those investments.

In the short term, it may could mean slightly fewer jobs as productivity improves. But in time the employers’ improved competitiveness should result in sales and employment growth.

The higher minimum wage should not apply to apprentices, or those under 20.

Last week’s proposal (slightly modified here to exclude those under 20) is materially different from what is happening in Alberta, and proposed in Ontario.

Neither provides an exclusion for employees under 20, nor for apprentices. They do not count tips or employer pension and benefit programs toward the fulfilling of the $15 minimum.

Their transition is much more abrupt, getting to $15 in 2018. Employers rightly complain that they can’t adjust that quickly.

“There is no way to absorb and adjust to a 32 per cent hit in less than 18 months” according to a coalition of employers quoted by CTV.

Karl Wirtz, the CEO and founder of a packaging company in Brampton, Ont., said he may have to consider bankruptcy. “This is something that has got me scared out of my mind.”

In spite of this, their plan does not provide an accompanying program of investment support, or the possibility of custom transitions, for manufacturers and processors.

Critics of minimum wage programs like to point out that they do not cure poverty. True. It is unlikely that any one policy measure will do so. Poverty has been with us since biblical times.

The goals of these proposals are to help our manufacturers and processors to achieve a more competitive position in their markets, and to help low wage workers, especially young adults, have viable, self-sufficient futures.

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Most Recent Comments

  • Excellent explanation of important transition to a decent minimum wage. Thank you.
    Your arguments are cogent and compelling, as usual, but there are a few other ways to help poor workers without injuring small business.
    One is to provide the same tax exemption for travel to work as is given wealthy owners of private corporations:
    No logbook required. The federal 65 cent/km mileage rate for driving personal vehicles for “work purposes”.
    As you know, Bill, one of the many reasons poor working folk can’t drive an hour to improve employment opportunities is that their travel costs come out of net, not gross, income.
    This is impossible at even $12/hr.
    Give it some thought, sir, people pay attention to your financial policy opinions.
    Hope you will write about this and similar tax policies to help the working poor.

    Philip Thompson | July 15, 2017

  • In sum, if we slow the pace toward a $15 minimum wage, exclude those under 20 and apprentices, count tips and benefits and partner with selected companies to invest in equipment and training, we should be OK? I am still skeptical about the ability of provincial bureaucrats to guide us to prosperity in this and other ways. F. A. Hayek once said, “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.” Why not, instead, decrease the workload and cost of bureaucrats, use the money saved to reduce corporate taxes and get out of the way?

    Steve Chipman | July 15, 2017

  • The NS policy explicitly contemplates piecework:
    “Piecework

    Many employers in Nova Scotia pay employees by the amount they produce and not by the hour. This arrangement is called “piecework.” The Minimum Wage Order (General) says that an employer cannot pay an employee less for piecework than that employee would have earned at the minimum wage for the number of hours worked. For example, an employee is paid $7 for each hat the employee sews. During a one-week period the employee produces 40 hats. The employee is entitled to be paid: $7 per hat x 40 hats, or $280.00. To produce the 40 hats, the employee worked 30 hours. At the minimum wage the employee would have earned $325.50 ($10.85 x 30 hours of work). The employee is entitled to be paid at least the same as if the employee was being paid the minimum wage for each hour worked. The employee is, therefore, owed an additional $45.50 ($325.50 – $280.00). ”

    Its a good system for planting trees or sewing hats, but not for washing dishes or working a cash register.

    Bill | July 14, 2017

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