The case for a high minimum wage

The case for a high minimum wage

Posted on February 7, 2021 at 7:11 pm by Bill Roberts
BC, Community, Provincial


Jagmeet Singh and the Federal NDP have long advocated a higher minimum wage (e.g., https://www.insauga.com/ndp-leader-jagmeet-singh-announces-plan-to-establish-living-wage-for-minimum-wage-workers). Provincially, the BC NDP raised the minimum wage to $14.60/hr on June 1, 2020, and it will increase to $15.20/hr on June 1, 2021 (https://www2.gov.bc.ca/gov/content/employment-business/employment-standards-advice/employment-standards/wages/minimum-wage)

The benefits of high minimum wages ­are clear; but it remains a hard sell for some people. Annie Lowrey recently discussed the issues in an American context in an article in The Atlantic (Annie Lowrey, January 29, 2021, The Counterintuitive Workings of the Minimum Wage: The benefits of a $15 minimum would greatly outweigh the costs. https://www.theatlantic.com/ideas/archive/2021/01/counterintuitive-workings-minimum-wage/617861/ ) I’ve summarized her points below, because I think they apply in Canada as well.

“The Biden administration and House and Senate Democrats want to raise the national minimum wage from $7.25 an hour to $15 an hour. The result would be straightforward: higher wages, but also the closure of mom-and-pop stores; higher prices on everything from gas-station tacos to day care; a rise in unemployment, particularly among teenagers; and strain in low-wage, rural economies.

“That, at least, is the argument being made by many economists, businesses, lobbying groups, and conservative politicians as the proposal comes under congressional consideration. It is an intuitive one. …  Yet … new economic evidence suggests that it is exaggerated…

“The proposal has raised three major sets of concerns. The first is jobs: Many businesses might not be able to make the pay-hike mandate work without laying off employees or not hiring them in the first place….Those job losses would be concentrated among the people who want but cannot get anything other than very low-wage jobs in the first place, meaning teenagers and other younger workers, women, Black and Latino workers, and immigrants.

“A large body of research has upended the old consensus that higher minimum wages necessarily reduce employment. One recent survey, for instance, examined 138 minimum-wage hikes at the state level and found essentially no effect on payrolls. [One study] showed that setting the minimum wage at up to 59 percent of average wages has no effect on employment. A separate study of minimum-wage hikes in low-wage areas by researchers at UC Berkeley found that setting the floor as high as 80 percent of average wages has no effect either. … Examinations of wage hikes in other countries also suggest that a high minimum wage would not cause major job losses …

“A second set of concerns has to do with high minimum wages forcing companies out of business or giving them cause not to open in the first place—not so much the big national chains that hire lots of minimum-wage workers, such as dollar stores, but mom-and-pops with thin operating margins and less access to credit….

“Firms have many options for adapting to higher labor costs, and they use them, a large body of research shows. They tend to raise prices on whatever they are selling, for one,…. In that way, they pass the cost of minimum-wage increases onto their customers. They also get more productive, using their workforce better and benefiting from lower employee turnover, improved morale, and higher worker output. Finally, they can accept lower corporate profits.

“That said, some businesses might not be able to make the math work with a higher wage base. Those tend to be businesses that were struggling to begin with and might not have made it anyway. The minimum wage seems to be Darwinian, driving weak competitors out: One study, for instance, showed that a company with a 3.5-star average on Yelp is more likely to fail after a minimum-wage hike, but a five-star company is not.

“Is it worth keeping the minimum wage low to save those firms, or to keep profits high at others? Stepping back even further: Does it make sense to allow businesses offering poverty wages to flourish? Do we want, as a society, to have an economy made up of businesses that rely on poverty wages? The answer, I believe, is clearly no.

“…in many one-stoplight towns, the predominant employers at the minimum wage are not independent farms, town-square barbers, and the like. They are consolidated megacorporations, such as Walmart, Dollar Tree, McDonald’s, and Tyson. These firms’ market power—and Washington’s acquiescence—lets them suppress wages, because workers have so few employers to choose from and are pitted against one another for pay increases. Higher minimum wages would counter these firms’ monopsony power.

“Finally, there is the concern that higher minimum wages will lead to inflation: Businesses do pass the higher labor costs associated with minimum wages onto consumers. But the price increases tend to be quite small… One study, for instance, found that for every 10 percent increase in the minimum wage, prices for food consumed outside of the home rise just 0.36 percent. …

“The question is what kind of economy we want to have, what kind of jobs we want to promote, and how much poverty we want families in relatively low-wage—and often brutally difficult, emotionally draining, physically tiring, and societally essential—jobs to experience. Right now, our policies do not just allow, but promote, destitution. We choose to have a large precariat, with tens of millions of families both working and poor. The $15 minimum would make it possible for such families to get by, if not thrive.

“A $15 minimum wage would lift 1.3 million people out of poverty, half of them children. It would push an additional $8 billion a year in earnings to families below today’s poverty line, and another $14 billion a year to households just above it. Millions of people would find it easier to put food on the table and gas in the car. At no cost to the government either—there’s no better deal for the taxpayer in economic policy.

“Second, the $15 minimum would reduce the country’s wage inequality, redistributing income from corporate executives and shareholders down to janitors, cashiers, fry cooks, and care workers and moving families into the middle class. Indeed, the failure to lift the minimum wage from its current level accounts for roughly half of the inequality between women at the bottom and women in the middle of the wage distribution. The policy would help reduce the gender wage gap and the racial wage gap, too, as well as helping the poorest parts of the country catch up.”

More information on minimum wages in BC can be found at https://www2.gov.bc.ca/gov/content/minimum-wage