Two sides of the minimum wage issue - facts and vested interests collide in the public debate.

opinionandcommentBy David Goodings

January 10th, 2018

BURLINGTON, ON

 

We live in an age of misinformation and partisan grandstanding. The latest examples—and there are many—have to do with raising the minimum wage in Ontario to $14.00 per hour at the beginning of this year and to $15.00 a year from now.

Articles on the minimum wage hike tend to be either pity-the-poor-workers or pity-the-small-businessperson. In the first category the authors stress fairness to workers and criticize businesses that can survive only by paying poverty wages to their employees. The second category emphasizes the likelihood of huge job losses and sympathizes with small businesses trying to survive in a highly competitive economy.

tim-hortons-workerHow does one navigate through these troubled waters? Let’s start by trying to find answers to a few key questions. First, does the overall economy suffer? Secondly, who benefits and who loses? Thirdly, have the media been responsible in reporting the situation?

To answer the question about the overall economy and potential job losses it is necessary to look at employment data gathered by Statistics Canada or its counterpart in other countries. Fortunately, economists have not been idle in doing this. Numerous studies [1] [2] have found that increases in the minimum wage have had no measurable effect (after a few months) on the level of employment. This finding is not something that can be altered or fudged according to one’s political bias; employment data are as factual as the data on graduation rates from high schools.

Regarding who benefits and who loses, the minimum wage earners—more than a million in Ontario—have much to gain, though they will still be below the official poverty line, even working 40 hours a week. The economy also gains because people with low incomes spend any extra money right away, benefitting the local economy. The losers are small business owners who, for whatever reasons, are unable to raise their prices. (Tim Horton’s franchise holders are forbidden by their parent company, Restaurant Brands International, from raising prices.)

going-out-business-closed-signOf course, if they find it necessary to raise their prices, so will their competitors, so they are not at a competitive disadvantage. Nevertheless, some small businesses may close or reduce the number of employees or reduce their hours and benefits. While that is regrettable, it may indicate that those businesses were operating unsuccessfully in a competitive market. The minimum wage increase may have the effect of eliminating some businesses that are not viable.

Finally, with regard to the media, it appears that many newspapers and other sources have tried to report both sides of this contentious issue, though I believe they have given more coverage to the plight of small businesses because the business community makes by far the most noise.

There is another aspect of the media response, however, that is troubling, namely, that news reports and headlines are sometimes alarming and lacking in context. An example is a recent research report from the Bank of Canada that predicted a slowdown in job growth amounting to 60,000 jobs across the country. This is a predicted loss of jobs being created in the future, not a loss of existing jobs. How was this reported? From the CBC: “Minimum wage hikes could cost Canada’s economy 60,000 jobs by 2019.” And from the front page of the Toronto Star: “Wage hike could cost 60,000 jobs, Bank of Canada says.”

These look like bad news stories, but what is missing is the fact that the Bank’s overall conclusion is positive, because “the 0.7 per cent increase in the level of aggregate real wages more than offsets the 0.3 per cent decrease in total hours worked.” An illuminating analysis of the Bank of Canada’s report has been given by Michal Rozworski of the Canadian Centre for Policy Alternatives. [3]

small business graphicThe above example shows the importance of context. There is also, of course, the “spin” that editors put on news stories or opinion pieces. For some, Kathleen Wynne and the Ontario Liberal government are, finally, doing the right thing by helping the working poor in a meaningful way. For others they are simply opportunists with an election coming in five months’ time.

My opinion, for what it’s worth? One should weigh the benefits for over a million workers—less worry about paying the rent and feeding the kids, less reliance on food banks and unhealthy food, greater ability to pay for prescription drugs, afford transit, and see the dentist about a painful tooth—against the difficulty faced by a relatively small number of business people unable or unwilling to adapt through raising prices. It’s definitely time for a change.

Goodings David

David Goodings

David Goodings was born in Toronto and studied mathematics and physics at University of Toronto and Cambridge.  He was a Professor of physics at McMaster University for thirty years and has been a resident of Burlington since 2001.  He is an active member of Poverty Free Halton and Living Wage Halton. Married to Judy for 37 years which may be why his favourite piano piece is:  Ain’t Misbehavin’ by Fats Waller.

Sources:
[1] Minimum wage hike won’t bring ‘doom and gloom’, economists say. Open letter by 40 Canadian economists endorses proposed provincial wage increase. Sara Mojtehedzadeh, Toronto Star, July 4, 2017.

[2] Wage Mythology. The minimum wage and the impact on jobs in Canada, 1983-2012, by Jordan Brennan and Jim Stanford. Report from the Canadian Centre for Policy Alternatives, October 2014

[3] Media get it wrong on Bank of Canada minimum wage study. Michal Rozworski of the Canadian Centre for Policy Alternatives in Behind the Numbers:
http://behindthenumbers.ca/2018/01/05/media-get-it-wrong-on-minimum-wage/#.Wk_CMOZvTts.facebook

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14 comments to Two sides of the minimum wage issue – facts and vested interests collide in the public debate.

  • I think the pacing is an issue here. Such a rapid change causes an immediate price increase that is hard to manage for people. My day care’s infant fee went up to $1,776.08 for 5 day infant care. People in Toronto had fees raise $300 – with two kids in care $600.

    That is a lot of change all at once for lots of families. Smaller jumps would have made it easier to modify commitments over time.

  • James Smith

    Well reasoned and thoughtful piece David. I’d suggest all look up Chris Rock’s old SNL bit on minimum wage.

    Not to belittle Greg’s comment and point of view, (as grand parents we have helped, as we can, with both of our grand kids care) but frankly I often wondered why those who mind pets are paid better than those who mind our children.

    Lastly, interesting and ironic layout choice having David’s fine piece next to a story about Fearmans. I say this as many will remember the union busting and wage rollbacks at that plant. I don’t buy their products to this day.

  • Hans

    A fine article.

    Something that I have not seen discussed in the media is what the net effect will be on business profits; i.e., wages are a tax deductible cost of doing business.
    Higher wages should also reduce turnover and consequently reduce training costs.

  • Stephen White

    Greg is absolutely right! It is the pacing of the increase that is the issue, not whether the increase in itself is good or bad.

    Large corporations like McDonald’s can easily absorb the increase, but family owned businesses will struggle with it. Margins are thin, and a 24% increase in the hourly wage rate can’t be absorbed without increasing prices or cutting back hours. The Canadian Manufacturer’s Association, the Ontario Chamber of Commerce, the Canadian Federation of Independent Business, and the Canadian Taxpayers’ Association, all told the Wynne government this repeatedly, but as usual they chose to ignore it.

    If your wages go up 24%, but your hours get cut, or you lose your job, and your other living costs (e.g. rent, hydro, food, insurance, etc.) escalate because of the inflationary impact, how are you better off? The Wynne government would have been further ahead to raise the basic income tax exemption, phase in the increase over a longer time period, or introduce direct subsidies to low income earners. When you’re desperate for re-election though you’ll will pretty much do anything to gain support.

  • Oxy Moron

    I have to question the perspective of someone who has been a tenured professor for much of their career, completely immune from market forces. I am a serial entrepreneur currently employing three part-time staff. I have never started a business and enjoyed instant success. It’s always a matter of toughing it out, understanding the consumer better, and never expecting to draw a nickel in the first few months or even years.
    Professor Goodings is insensitive to the adaptation that must take place in the face of rising costs. My biggest competitor is a US company with infinite resources. I’m not complaining — I chose to enter this space but I know that the competitor is completely unphased by changes in minimum wages. I, on the other hand, have to look long and hard at how to compensate for this increase. I already pay my people better than minimum wage. This increase raises the bar and causes a ripple effect where my staff expect to see an adjustment too. My business will survive, as always, with no help from the government. But I didn’t need this new obstacle.

    • Phillip

      Oxy, your criticism is well founded. Look at the sources Goodings uses–they are all left-wing sources. Bias much? I wonder if as a physics professor, he would have graded his students highly if they had omitted a significant part of the relevant research?

      • Hans

        Professor Gooding’s profession is not particularly relevant, since physics and mathematics leave much less room for opinion than the subject of this discussion; i.e., economics. I wonder how anyone could disagree with him when he says that it is time for a change?

        We should remember that the businesses paying minimum wage have benefited from underpaying employees for far too long and that increasing the minimum wage did not appear to impair Alberta’s economy.

        Not to minimize the plight of fixed income seniors, but that is a separate problem.

        • Phillip

          Actually, Hans, is profession is extremely relevant. As a scientist, Gooding has been trained to evaluate ALL the evidence before reaching a conclusion. Gooding appears to have reached a conclusion and then researched only a subset of sources that supported his conclusion.

          • Hans

            Phillip,
            In economics, ALL the relevant data are NEVER available; the number of variables is typically enormous, some are unknowable, and they are constantly changing. That is why economists rely on the ceteris paribus assumption and are too often wrong, because real life has no cet. par.

            If you genuinely feel that no change was needed, I would assume that you have no empathy for those who struggled to make ends meet at $11.60 per hour, which I do not understand.

            I agree with those who believe that the real problem is not “What” was done, but “How”; however, I stopped expecting competent and rational behaviour from governments many decades ago. Hopefully the Brazilians who own Tim Horton’s will come to their senses and find a way to cope.

        • joe gaetan

          You are right minimum wage did not impair Alberta’s economy, the oil glut, Notley and Trudeau took care of that.

          • Hans

            If Alberta’s governments had been more effective in diversifying their economy since the Leduc oilfield discovery 71 years ago, maybe the economy would have had more resilience.

  • Susie

    This great increase to the minimum wage!!! – Well, what about the FIXED INCOME that Seniors have to survive on that doesn’t touch anything of a minimum wage of $14.00. What people today make in a week, we made in a year if we were lucky. Seniors today have worked all their lives with two and three jobs to make ends meet and they are still counting their loose change to survive. Don’t see or hear of any mention of looking after our pioneers that got everyone where they are today????

    • Phillip

      Interestingly, despite the propaganda being disseminated from the Wynne government, there are many small business owners who will earn less than $14 per hour. Wynne is playing the politics of division to the hilt. I agree with your comments on seniors–we don’t count until the election in June–then let’s make sure we count by ensuring that McMahon, the “Rubber Duckie Girl” is not re-elected.

  • Phillip

    Hans, your data based argument is off-base. Gooding’s article was not about data per se, but about “cherry-picked” politically-biased sources–a huge difference.
    He didn’t use data to reach a conclusion; he used carefully chosen opinions to support a conclusion he had clearly reached before writing the article. He knows better.

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