The Minimum Wage Fallacy

Minimum wage has been a hot topic of discussion lately. A number of American cities have adapted a $15 minimum wage law, and an American group known as “Fight For 15” has been protesting for other cities to adapt the same wage. Here at home, the Alberta NDP campaigned on raising the minimum wage to $15/hour by 2018 (they have hinted at an increase to $12/hour by October 1). In theory, this so-called “living wage” sounds like something that would raise up the lower class and decrease income inequality. In practice, it’s a whole other story.

McDonald's Self Serve Kiosks

One common argument made by proponents of the $15 minimum wage is that corporations can easily afford the increased labour costs. While this may be true for large corporations such as McDonald’s and Walmart, these corporations have invested the money in developing electronic self serve options, and these are already being seen in cities like Seattle and Los Angeles (both of which have introduced $15 minimum wage laws). Seattle’s minimum wage laws took effect on April 1 (with a 7 year maximum timeline for full implementation for small businesses. Large businesses have a 3 year timeline). Leading up to this date, a large number of well-known Seattle restaurants made the decision to shut their doors. The Washington Restaurant Association estimates that the average Seattle restaurant, prior to the implementation of a $15 minimum wage law, had a budget breakdown of 36% labour costs, 30% food costs and 30% other operational costs, with a profit margin of only 4%. After the minimum wage increase, the labour costs are expected to rise as high as 47% in a full service restaurant. This will not only eliminate the 4% profit margin, but will also hit the bottom line of these restaurants hard, and without restructuring or increasing the price on consumers, will almost surely lead to the closure of even more restaurants down the road.

With all of the above said, the biggest victims of a massive minimum wage increase may be the very people that its proponents claim to be fighting for. A recent study conducted by the Canadian Federation of Independent Business concluded that for every 10% increase in minimum wage, there will be an approximate 3-6% reduction in jobs for students and young workers. Here in Alberta, Rachel Notley’s NDP has proposed a 50% increase to minimum wage. Using this same CFIB study, that could equate to a 15-30% reduction in jobs for students and young workers. Notley has also hinted that she will eliminate the $1 difference in minimum wage for liquor servers. The impact of this is unknown at this point, but some pundits have suggested that it may lead to a decrease in tips. One aspect of a $15 minimum wage that hasn’t been mentioned much by the media is what will happen to those who currently make $15-20/hour. Workers currently making salaries within that range would likely require salary increases to remain satisfied in their positions, further increasing the labour costs on businesses. This will trickle down to the consumer and increase costs for everyone, including those that the $15 wage proponents claim to be fighting for.

Minimum wage jobs are not intended to be a career, but rather a stepping stone, and a source of income for students and young workers. As of March, only 2.2% of Albertans were working for minimum wage (compared with 7.6% on a national scale). Of the workers making minimum wage in Alberta, 51.3% were under the age of 25, 55.3% were part time workers, and 27.8% were temporary workers. Furthermore, 46.7% of these workers had been on the job for less than a year, and 35.2% had an education level less than a high school diploma. These statistics can be seen in further detail on the Government of Alberta’s Minimum Wage Profile, released in March 2015. This raises many questions as to exactly why Notley has been so insistent on raising the minimum wage. Interestingly enough, Notley hasn’t even suggested increasing the income tax personal exemption amount, which would have the greatest positive impact on low income earners. Due to this, some analysts have suggested that Notley’s main motivation behind increasing minimum wage may be to simply increase the amount of income tax going back to the government.

There is no way to know Notley’s true intentions, nor predict the full impact of a $15 minimum wage on Albertan workers and businesses, but the existing evidence and studies point to this being a very poor policy. Coupled with the promised 20% increase to current corporate tax rates, this minimum wage increase could be especially disastrous. Albertans need to brace themselves, because the upcoming NDP minimum wage increase is not looking like the saving grace that the NDP claims it will be. Instead, it’s looking like a very gloomy situation for everyone from the average consumer to those workers actually making minimum wage. Hold on to your wallets, Alberta. It’s going to be a bumpy ride.
For inquiries, feel free to email me at tnorrissg@gmail.com. Follow me on Twitter at @TNorrisYEG

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9 thoughts on “The Minimum Wage Fallacy

  1. The point all of this is glossing over is that most of the “Small Businesses” in Alberta are not minimum wage paying businesses. 2.2% of Albertan’s are making minimum wage which basically means 2.2% of people would be affected. And of these 2.2% I would hesitate to say that half of them or more work for large corporations. (WalMart, Fast food, that sort of place) I doubt this has half the impact this article is claiming. Yes the McDonald’s of the world could go automated but they would still need kitchen staff. Huge box stores will still need warehouse staff and shelf stockers. Most small businesses in this province don’t pay minimum wage so i doubt they would feel any sort of a pinch. To be honest this feels more like a smear attack on Notley. Get over it you conservative fanboy/girl, they lost.

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    • It seemed like you were trying to use some degree of logic (although you’re wildly incorrect) until you used your “get over it fanboy” line.

      I’ve backed up my arguments here with solid facts and numbers. Yes, 2.2% of people make minimum wage, but anyone making under $15/hour right now (which is a much larger number than 2.2%) will also be affected. Workers making $15-20/hour right now will also be expecting wage increases.

      Sorry bud, you can’t just comment “OH YOURE TRYING TO SMEAR NOTLEY GTFO FANBOY” in response to a fact and study filled article. Try again. Come back with some logical numbers and no personal insults, then I’ll give you the time of day for fair debate.

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  2. The general public often equate many businesses as “large corporations” because they are well know (ie McDonalds) but many of these are in fact small businesses and licensees/franchisees of the larger brand. The thought process that “McDonalds is a large corporation and can afford to pay these increases” is incorrect as most McDonalds are independent franchisees.

    It has been proven over and over again throughout free markets across the world over a long period of time that increases to minimum wage do not have he intended consequences. It is taught in any macros economics 101 course in University or College that this is the case. If you want to increase prosperity for the most people the way to do it is through tax reductions and simple and equitable taxation methods.

    We do however live in a democratic nation and when the majority speak, whether from an educated position or not, then we live with that. Personally I am not looking forward to this situation in Alberta but would not trade my democratic rights for the alternative in hopes that political leadership are in line with my personal values. The likely reality will be that many of these changes will occur, the fallout will show why they were bad policy, and the electorate will be educated in what their decision this spring actually meant. Until that time, as you said in your article, hold on!

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  3. British Columbia dumps over 34 million gallons of raw sewage, pesticides and pharmaceutical into the Pacific.
    Tuesday, Feb 24, 2015
    Julie Wilson.

    Note: I tried to highlight the website of article here on the comment section – no go. However I managed to highlight it on the website box.

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  4. Oops, apparently the website to the above didn’t appear, sorry about. For some reason I am having trouble highlighted anything.

    Anyway, Elizabeth May has a hell of a nerve to accuse my Alberta’s oil sands when her own province sewage into the pacific is far worse.

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    • I agree with you, Jen! May was on 630 CHED on the Ryan Jespersen show recently. I actually called in and completely tore her apart after she was done, leaving Jespersen almost speechless.

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