Minimum Wage Is An Interesting Topic

Talking past each other

Conversations are two or more dimensional and together, all the parts make a coherent whole. Agree or disagree, no matter. Everyone has something to contribute with a view to achieving some more complete truth.

Political discussions seldom work that way. They are about who is right, and less often about what is right.

The “right” minimum wage

A current argument is about how much the minimum wage should be.  The discussion addresses subjects like a living wage, increased value to the economy, social justice and business limits. It assumes the need for legislation.

The problem is that people are talking past each other rather than to each other. No matter what side of the argument you are on, you are not looking for information that negates your position. You wait for your turn to talk and contribute the prepared talking points.

The question of what should minimum wage be is not an objective one. It is ideological. 

What would a Martian do?

Martians have no knowledge of how we came to be where we are. They are objective about the present and the future because they lack history.

Question One – Who would benefit?

Clearly the employee would be better off. Probably by much less than they expect. All of the increase is taxable, subject to government plan deductions for Canada Pension and Employment insurance, and it claws back some other income related ptograms like provincial property tax credits, HST, and child benefits. The employee would do well to keep 60%. More likely less.

The government would be a little better off. The added tax deduction for the employer is worth less than the sums paid by the employee.

The employer would have less income if everything remained the same.  It would not,  so we should look at responses to the change. 

Question Two – What responses will appear?

There will be several.

The first is the easiest to see. Raise prices. The thesis behind that is that businesses are not entities that have independent existence. They are conduits for money from customers to employees, suppliers, landlords, machine manufacturers, the government, and so on. If one of the recipients take more, the customers will be required to pay more.

Rising prices across the board will reduce the useful part of the extra cash the employee received.

The second is obvious too. Automation. All businesses react to their environment. If the price rise reduces volume a little they may need to reduce costs somewhere else to find the right price point. McDonalds, for example, are already deploying ordering kiosks. The result is fewer counter personnel. Those people have seen, or will see their wages change from 40 hours at $11 per hour to zero hours at $15. System changes take time to implement, but they are inevitable.

Automation costs less as more of it is delivered. Sooner or later it will cost less than the price of labour to do the same task.

The third obvious aspect is higher government costs for welfare, employment insurance and retraining. Job losses are inevitable because of automation or business failures. I haven’t seen how they modeled this factor and I doubt they have.

The fourth obvious factor is a destruction of the normal growth in salary through experience and time served. If all employees are paid in relation to the minimum wage, what happens to a person who used to make $15 per hour as a more experienced person. Should their income go to minimum wage plus 30% as it is now or should it stay at $15? There is more to consider than the effect on the lowest wages. 

How people talk past each other

The advocates argue that a person deserves a living wage.  They further argue that a higher wage means more money to spend and that is good for businesses. Businesses will thus willingly carry out the mandate. Please show me evidence of any of this. 

The status quo argument includes the thought that it is not the person that is worth the money, it is the job that defines the money. People won’t pay $15 to solve an $11 problem forever.

The idea that the new money will make a difference is absurd. There is no new money. It is only a question of whose pocket holds the old money. Customers have less because of higher prices, automation suppliers have more, owners have less. Governments have less and it won’t show up right away. If $15 is a big bonus to the economy, why not $40?

The real world has implicit limits.

Until the people understand the nature of the real world system, the argument is futile. No one will come away with a better understanding of the system and its limits and opportunities. No deeper understanding. No durable solution.

If someone wants or needs more wage income, they must invest in themselves so that can do a job that is worth more.

As always, governments cannot make the real world different.

Colum Gleason has commented:

“Nothing is stopping you from starting a company and paying above-market wages. Nothing, that is, except reality”

Darn reality!

Don Shaughnessy arranges life insurance for people who understand the value of a life insured estate. He can be reached at The Protectors Group, a large insurance, employee benefits, and investment agency in Peterborough, Ontario. 

In previous careers, he has been a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business.

Please be in touch if I can help you. don@moneyfyi.com  866-285-7772

This entry was posted in Decision Making, Insight to Business, Our Societal Issues and tagged , . Bookmark the permalink.

One Response to Minimum Wage Is An Interesting Topic

  1. Dale Ens says:

    Great insight as always Don.

    Dale Ens

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