In the midst of municipal election season, the Government of Alberta scheduled another increase to minimum wage, making us the most expensive jurisdiction in Canada at $13.60 per hour, effective October 1.
People making more money is almost always a great thing. Ufortunately, simply mandating that employers of all shapes and sizes pay more to lower-wage workers regardless of such factors as their age, position, and whether they earn gratuities, appears to not be as straightforward and without unintended consequences as envisioned by the NDP government.
The government predicated $15 minimum wage on the idea that workers deserve a “fair wage” and that the increase in wages will result in additional economic contribution by the lower end wage earners. In reaction to the government’s plan, many referred to the initiative as a massive social experiment as there was very little research to quantify what exactly the effects would be.
When it comes to business fundamentals there are a few underlying issues with the concept that explain why the significant and rapid increases are not and will not have the desired effect. The first is that the types of businesses that utilize low-wage workers are typically those with the thinnest of profit margins such as retail and hospitality. The nature of their industries leaves little wiggle room to either absorb the added cost or increase their prices, leaving just one option - reduce costs.
Unfortunately, most costs in business are fixed or not within the businesses control to change. Some examples would be property and income taxes, rent, utilities, inputs like food and tools. However, one cost that is much easier to change is labour. Many businesses have the ability to make due with less staff by pursuing automation (think ATM’s or self-serve kiosks at supermarkets and restaurants), or by just ‘making-do’ with fewer staff.
When we first consulted with the Labour Minister Christina Gray here in our office, business owners and managers told her almost exactly what we suspected, they would have no choice but to reduce the total number of payroll hours, attempt to increase prices, and even resort to layoffs in order to counter the increased cost. Fast forward two years and a number of studies have been published analyzing the impact of the changes here, and other jurisdictions that have pursued a much higher wage floor.
Recent studies by the National Bureau of Economic Research and The Economic Journal showed that increases in minimum wage decreases the employment of low skilled workers in automatable jobs and increases the likelihood those workers will be unemployed. The C.D. Howe study on the subject projected that Alberta would lose 25,000 jobs as a result of the higher legislated wage. Other studies show significant increases in youth unemployment as minimum wage increases, decreasing invaluable work experience opportunities.
The policy that was meant to help people appears to be having the opposite effect. Minimum wage is just too blunt a tool for the job. Work done by groups like the Central Alberta Poverty Reduction Alliance delve into the why and how behind the impoverished. Certainly wage is one factor, but so is early childhood development, education, affordable housing, health and wellbeing, and access to childcare and transportation; clearly all invaluable variables in increasing an individual's earning potential.
We also need to consider that these changes were made in isolation without any consideration given to external forces such as the recession or the carbon levy, corporate and municipal tax increases, and soon, probably the changes proposed by Finance Canada.
The debate around minimum wage is a not so nuanced reminder that social issues and business issues are closely intertwined and that the most obvious answer is not always the best.
Reg Warkentin is the Policy and Advocacy Manager for the Red Deer and District Chamber of Commerce
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