Minimum wage in Ontario being hiked?

[danaeris]

So, a private bill has been introduced to raise the Ontario minimum wage to $10/hour.

This may sound good on the surface, but I don't think it will actually help.

Why?

Last time the minimum wage went up, companies just hiked their prices due to increased staff cost. Which raises the cost of living. Which devalues the dollar of those employees. Which makes the $10/hour the same as before.

Oh, I know it's more complicated than that. Not all costs of living will go up, but enough of them will that it will 'equalize' and then minimum wage will be back to being almost as little as it was before. This is just a way to devalue the dollar, as far as I can see.

So what could they do to actually change things?
(1) Change the personal deducation (my favourite option). After all, it is not possible to live on the personal deducation currently used in Ontario (or federally, for that matter). If you ask me, people who are earning minimum wage full-time should not be taxed. If it's not enough to live on, how can the government justify taking some of it?
(2) Introduce some kind of set of regulations on distribution of salaries within an organization. Part of the problem is that upper management's salaries continue to increase at a rapid pace, while the rest of the company gets raises at about the rate of inflation. Of course, regulating this would be a NIGHTMARE, and I don't actually advocate it. But this WOULD help. Still, this would be better accomplished through taxation, rather than regulation.
(3) Put some kind of price freeze on companies that employ minimum wage employees for the next year, so that they can't raise prices in response to this. But, this would just delay the effect.

I don't claim to be an economic expert. So please, feel free to point out the errors in my logic. But I just don't see a raise in minimum wage helping matters.

Comments

[earthdragon.livejournal.com]

As far as I know, increasing the minimum wage would generate some positive price pressure, but the fraction of the economy dependent on minumum wage tasks is small enough that its not a one to one effect.

(1) Do minimum wage earners actually pay any significant amount of taxes?

(2) Spin off a company that then contracts the low wage workers back...

(3) Any low margin buisness dependent on minumun wage would get hit by inflation with price controls.

[danaeris.livejournal.com]

Yeah, I was thinking about that... where do minimum wage workers work? Fast food, which is a service which poor people don't NEED (but often they are the main patrons). But, basically, anywhere you go to shop, be it a grocery store or Best Buy, you're dealing with minimum wage employees. Which means that operational costs will go up for ANYWHERE you shop. Some of that cost may be absorbed on an operational level, but some of it will likely be reflected in price hikes.

What WON'T be impacted is rent and utilities, which granted is a large portion of most peoples' monthly expenses. So yeah, it's not a one to one relationship... but I still think changing the tax structure would be more productive.

Ontario's basic personal amount (deduction) for 2007 is about $8500. There's NO WAY you could live on $8500. MAYBE in a small town if you had absolutely no luxuries and lived in a shared household and had no dependents, but DEFINITELY not in any of the larger towns.

[badoingdoing.livejournal.com]

I've read arguments that minimum-wage jobs are the ones that disproportionately serve low-income people. Economics are complicated!

[thebitterguy]

The grocery stores I've seen/worked in are union shops, so they get above min wage.

[danaeris.livejournal.com]

Good to know. Although many low-income folks choose NOT to cook their own food, to me, a reasonable price on groceries is the most important thing.

[velvetpage.livejournal.com]

Very true; my sister works at the Barn part-time, and was getting nine dollars an hour when she started there four years ago.

[marahsk.livejournal.com]

That's technically true, but when I worked at Loblaws, I made minimum wage. It would have taken years before my raises would have equaled what I was paying out in union dues. Which I wouldn't have minded, except that the union did squat for part timers with no seniority.

[dicedork.livejournal.com]

The way I understand this situation is that fiscal conservatives tend to try and put cart and horse in reverse order. Minimum wage isn't setting the pace (I don't know about Canada, so take this with a grain of salt) it's barely keeping up. Inflation raises prices whether or not the minimum wage is altered. Cost of living goes up whether or not the minimum wage is altered. At some point it has to be said that the minimum wage doesn't have the ability to maintain any kind of minimum anything, and it gets raised. That X amount is able to buy as much as it did when it was set as the *MINIMUM* wage. Unfortunately it becomes a political issue as well instead of a purely economic one.

Yes, you'll get some shaking out when the wage goes up. You get more if you raise the minimum wage TOO MUCH. Inflation, though, is a way of life at about five percent, so the dollar is always being devalued over time.

This is a VERY basic hit of the main counterargument to the claim that min wage will just cause inflation. There are extremely complicated arguments on both sides.

[danaeris.livejournal.com]

Right. I guess the question is, what is a reasonable minimum wage?

But, regardless of this argument, I think that the taxation below minimum wage is also weird.

Actually, minimum wage was just raised. It hits $8/hour in Ontario come Feb. 1. Raising it to $10/hour is awfully soon. Are they saying that the original planned raise just wasn't enough?

I'd rather see minimum wage raised than NOTHING done, but I think there are more productive ways to help people with minimum wage jobs.

[dicedork.livejournal.com]

"Reasonable" I think, would be defined by the inflation rate, and match inflation. But by holding it off for two to three years it keeps inflation from snowballing. (Despite the claims, most companies don't just immediately raise their prices as labor costs are a small portion of their costs and really tiny when it comes to places that employ lots of minimum wage workers.) As a political issue, though, it leaps around that actual minimum-to-live amount, depending on who's in charge at the time.

[danaeris.livejournal.com]

I agree with most of what you say, but...

(Despite the claims, most companies don't just immediately raise their prices as labor costs are a small portion of their costs and really tiny when it comes to places that employ lots of minimum wage workers.)

Dunno. When the rate was raised when I was living in SF, many of my favourite low-cost cafes etc. immediately raised their prices across the board... to the point where I could no longer eat there regularly. Brainwash even put up a sign saying that it was due to increased employee costs.

[velvetpage.livejournal.com]

That may have been politically motivated, but I have heard of people in minimum wage jobs losing out in other ways - reduced hours, for example, or lack of overtime, both of which mean more work with the employees who are there at any given time.

[dicedork.livejournal.com]

Sounds more like a political reaction than any kind of economic need. An eatery needs to run about 20-25% labor to stay in business, so even a 20%-25% increase in wages would only raise total costs about five to seven percent at maximum. (Of course it's not this simple. It gets higher as the labor for the products they order goes up, but there are also other forces that level it out, and it loses impact at each level.) I'm guessing the price hike wasn't seven cents on the dollar. Sounds like pretense to me, or a thinly veiled attempt to hit the consumers in the wallet so they would act politically.

The problem, of course, is what happened to you. If you couldn't go their regularly, you can bet lots of other people had the same reaction. They just priced themselves right out of their market out of spite. I'm guessing those prices came back down or those places aren't around much. (Or possibly they niched upwards to a different level of client.) But if a business can't make a profit, while giving its employees a wage they can live on, then they have no business being in business.

It's obviously a delicate balance. As long as minimum wage hikes are protecting people, they're probably pretty good. As soon as they're turning into a tool to try and redistribute wealth then they get really problematic, really quickly. Sadly the more politicized the issue is, the more it's usually the latter case. When the minimum wage NEEDS to go up, usually a lot of moderate conservatives are pretty much in agreement, and it's almost a non-issue.

[valdyra.livejournal.com]

Right. I guess the question is, what is a reasonable minimum wage? ... Actually, minimum wage was just raised. It hits $8/hour in Ontario come Feb. 1. Raising it to $10/hour is awfully soon. Are they saying that the original planned raise just wasn't enough?

Actually that is *exactly* what they are saying. The minimum amount someone working 40 hours a week needs to make in order to live above the poverty line is $10/hour.
The Minimum wage was frozen several years ago at $6.85 during the Mike Harris era to appease his corporate right-wing supporters. He also lowered welfare rates by about 30%, thereby making it difficult to live on that either.
The $8 minimum wage that has been phased in over the past few years is a Liberal stop-gap measure intended to make up for the years the minimum wage was frozen. It does not bring the wage in line with the inflation that has *already occurred* in that time, or take into account the insufficiency of people to live on that amount.
The NDP's bill to immediately implement a $10 minimum wage is an attempt to finally bring wages to a reasonable level. If Tim Horton's want to raise their prices again (as they have the past 3-4 years with the increases) I'm sure people will choose to go somewhere else. Other companies may make other adjustments. But ultimatelythis is about the jobs available being worth having. Many people are forced to work 2 or more jobs in the current economy, especially with the trend to hiring only part-time workers to avoid paying benefits. And the jobs aren't that great to begin with (fast food, retail, etc.)
More and more economists are agreeing that this is the right measure to take. Although I also agree that raising the minimum personal amount on taxes is a good idea, I see it as an "and/both" not "either/or" issue.
Just thought you might like some background and opinions from a self-affirmed left-wing-nut Community Work student. :P

[freefloat.livejournal.com]

Except that some of these minimum-wage employers will drastically cut back on the hours they offer to their employees. Would you rather work 40 hours at $8 or 20 hours at $10?

[velvetpage.livejournal.com]

After a similar discussion in my journal, I came to prefer a different method for reducing poverty: the negative income tax. (http://www.globaljusticemovement.org/subpages_articles/nit.htm)

[angel-thane.livejournal.com]

Last time the minimum wage went up, companies just hiked their prices due to increased staff cost. Which raises the cost of living. Which devalues the dollar of those employees. Which makes the $10/hour the same as before.

That would only apply if everybody (or nearly everybody) was making minimum wage. In reality though, there are about 5-15% (perhaps less, certainly not more) or the working population making minimum wage. Wealth is relative - you're only as rich as you are in comparisson to other people. So yes, some prices may go up (and others certainly won't), but they won't go up 25% (which is what it would need to be for the 10/hr to equal the 8/hr that it currently is set at), because of all the industries that don't employ people at minimum wage (and even if it did, those minimum wage earners would still be richer than they are now in comparission to the rest of the economy).

The major argument (that I've seen) opposing minimum wage, is that of job flight (ie if the minimum wage goes up, employers will move their businesses to other countries where the wages are lower). IMNAAHO, this is unlikely to happen, for the major reason that most minimum wage jobs are flight-proof. Manufacturing and business related jobs already pay above the minimum - the jobs that pay minimum wage are mostly retail, service, and housekeeping - jobs that can't easily be shipped overseas.

There are three important steps to helping the working poor get out of their situation. One of them (as you mentioned) is increasing the Basic Personal Exemption (which, incidentally, was a Tory policy as long ago as the late 90s (rougly doubling it to $15-20,000, but the Liberals would have none of it). Another is the encouragement of trade unions in retail environments. But the raising of minimum wage to one that can aid survival is another, very important, step.

But then again, I'm one of those right-wing crazies. ;)

[cos]

When the minimum wage goes up, and prices go up, the net effect is positive. It leads to economic growth, price increases don't come close to cancelling out the effect of the wage increase, people whose wages got raised spend more and that leads to a lift for everyone.

Minimum wages

[admiralthrawn.livejournal.com]

Minimum wage hikes are a tricky business.

Let me start out by saying that I firmly support your option "1": the government should not be hitting you with income taxes until your income hits a level to support yourself. Commence debate on what that level is in a different thread; I'm not that well educated on canadian taxes or cost of living so I'm not going to state an opinion on what your personal exemption should be, but I think the US and every state that I've lived in have had personal exemptions well below what the government claimed as the poverty line.

"2" is doomed, due to the complexity -- if you attempt to regulate salaries, organizations will just move to alternate forms of compensation which are harder to track or evaluate. If the executives can't be rewarded with more cash and so they instead get reserved parking spots... how do you measure the "value" of those? And if they're getting paid in stock options for preferred stock that isn't exchange-traded, what's that worth? It will get very messy, very fast. Rich people and companies can afford accountants, lawyers, and creative HR people to deal.

"3" is also a bad idea. Price freezes are awful, for a wide variety of reasons that I won't go into here (but I'll be happy to rant elsewhere, or in a later comment, if you care).

But back to the original question:
How a company reacts to a minimum wage hike is complicated. In general, as labor costs go up, you'll seek to use less of it -- witness the rise of fast-food call centers, where at the drive-in-window, you're talking not to someone inside the store, but instead to someone halfway across the continent. It requires more cash into hardware (like phone lines), but lets an order-taker be serving four time-zones, so they're load-balancing nicely, thus having fewer total order takers (any given hour during the day is busy time somewhere -- as breakfast is ending on one coast, lunch is starting on the other). So the chain saves a lot of money on labor, at the cost of spending a lot on capital. A noticeable hike in the cost of labor will cause more attempts to use less labor -- this may cause additional unemployment, or cause formerly full-timers to become part-timers. In places where there isn't a good technological shift possible, you may see shifts to differently skilled labor (if one high-skilled person can do the same amount of work as four low-skilled ones... you'll hire four low-skilled ones when there's a low minimum wage so that's the cheap option, but if minimum wages rise, maybe one high-skilled person is now the cheaper plan). How much you increase unemployment is unclear, but it is a lot smaller than most right-wingers would have you believe unless the minimum wage increase is huge. Not that this is much comfort to one of the newly unemployed, of course.

Alternately, of course, you can raise prices; as someone else pointed out, even in labor-heavy settings like restaurants, labor is likely less than half of your costs (taxes and capital costs are probably just as big), so a 25% increase in labor (in the worst case where everyone is minimum wage) can be offset by a 12% increase in the prices the consumer is seeing. Of course, it's been observed that most of the places hiring minimum wage employees are those that serve low-income people, so you may be placing these price increases exactly where they do the most damage (your local expensive french restaurant in the rich neighborhood does not hire minimum wage people, but the McDonalds in the poor neighborhood does).

[Error: Irreparable invalid markup ('<continued [...] post.>') in entry. Owner must fix manually. Raw contents below.]

Minimum wage hikes are a tricky business.

Let me start out by saying that I firmly support your option "1": the government should not be hitting you with income taxes until your income hits a level to support yourself. Commence debate on what that level is in a different thread; I'm not that well educated on canadian taxes or cost of living so I'm not going to state an opinion on what your personal exemption should be, but I think the US and every state that I've lived in have had personal exemptions well below what the government claimed as the poverty line.

"2" is doomed, due to the complexity -- if you attempt to regulate salaries, organizations will just move to alternate forms of compensation which are harder to track or evaluate. If the executives can't be rewarded with more cash and so they instead get reserved parking spots... how do you measure the "value" of those? And if they're getting paid in stock options for preferred stock that isn't exchange-traded, what's that worth? It will get very messy, very fast. Rich people and companies can afford accountants, lawyers, and creative HR people to deal.

"3" is also a bad idea. Price freezes are awful, for a wide variety of reasons that I won't go into here (but I'll be happy to rant elsewhere, or in a later comment, if you care).

But back to the original question:
How a company reacts to a minimum wage hike is complicated. In general, as labor costs go up, you'll seek to use less of it -- witness the rise of fast-food call centers, where at the drive-in-window, you're talking not to someone inside the store, but instead to someone halfway across the continent. It requires more cash into hardware (like phone lines), but lets an order-taker be serving four time-zones, so they're load-balancing nicely, thus having fewer total order takers (any given hour during the day is busy time somewhere -- as breakfast is ending on one coast, lunch is starting on the other). So the chain saves a lot of money on labor, at the cost of spending a lot on capital. A noticeable hike in the cost of labor will cause more attempts to use less labor -- this may cause additional unemployment, or cause formerly full-timers to become part-timers. In places where there isn't a good technological shift possible, you may see shifts to differently skilled labor (if one high-skilled person can do the same amount of work as four low-skilled ones... you'll hire four low-skilled ones when there's a low minimum wage so that's the cheap option, but if minimum wages rise, maybe one high-skilled person is now the cheaper plan). How much you increase unemployment is unclear, but it is a lot smaller than most right-wingers would have you believe unless the minimum wage increase is huge. Not that this is much comfort to one of the newly unemployed, of course.

Alternately, of course, you can raise prices; as someone else pointed out, even in labor-heavy settings like restaurants, labor is likely less than half of your costs (taxes and capital costs are probably just as big), so a 25% increase in labor (in the worst case where everyone is minimum wage) can be offset by a 12% increase in the prices the consumer is seeing. Of course, it's been observed that most of the places hiring minimum wage employees are those that serve low-income people, so you may be placing these price increases exactly where they do the most damage (your local expensive french restaurant in the rich neighborhood does not hire minimum wage people, but the McDonalds in the poor neighborhood does).

<continued in next post. I hate the length-filter>

Re: Minimum wages

[admiralthrawn.livejournal.com]

On the scale of a city or province, the effects are even more variable, because minimum-wage-earners tend to be concentrated in certain locations, and minimum-wage-payers tend to be concentrated both in certain locations and in certain industries. So, when someone says sagely that the unemployment rate will go up by 0.5%, they actually mean that a few areas will see a 10% increase, and most areas will see an unmeasurably small increase. And when "prices" go up, it's actually "fast-food-prices rise, while french restaurant prices stay the same", "gas stations charge more, but new cars stay the same", and so on. Further, whether or not people "can't live on" the minimum wage varies -- costs are a heck of a lot higher in cities than in rural areas, for example, so the worth of the anti-poverty benefit is different.

So, in summary, the costs and benefits are both very hard to evaluate. And sadly, I really doubt that anyone in the government is trying to evaluate them, because they're all too busy trying to evaluate the benefits of various snazzy slogans about helping the working poor or whatever.