by David Descôteaux
Raising the minimum wage may do more harm than good for those at the bottom of the income ladder.
Imagine you are the CEO of a small or medium-sized enterprises that employs minimum-wage workers. How would you react to news that the minimum wage would gradually increase to $15 an hour from $10 an hour?
At the office on Monday morning, your announcement might be something like this: “Good morning, staff. I have some good news and some bad news. The good news is you will be getting a 30% pay raise, thanks to a recent increase in the minimum wage by our political leaders. The bad news is I will have to gradually reduce everyone’s hours. If our small business is to remain profitable, total payroll can’t exceed a certain percentage of sales. And since sales haven’t increased by 30%, I can’t give you as many hours. I will therefore have to find another solution to cover the hours you no longer will be working. This is a frustrating situation for everyone, but it is not of our choosing.”
This is an aspect of “economics 101” that all those – increasingly vocal – proponents of a $15 minimum wage seem to forget.
Of course, workers who will keep their jobs after such a measure is introduced will be happy. But others, whose productivity or experience does not justify a $15-an-hour wage, will not. It is though we are saying to these people, often students and inexperienced workers, “You no longer have the right to offer your services for less than $15 an hour.”
Now image a climb up the labour market ladder. Raising the minimum wage would effectively remove the first rung, which is the entry level to the job market where someone can gain his or her first work experience. To get to the ladder, workers will now have to climb onto a higher rung, one that everyone short on experience or skills is unable to reach.
So what would be a fair salary for people at a the bottom of the ladder? Difficult to say. The market can determine wages much better than politicians can.
This so-called “invisible hand” was recently at play in the U.S. Titans such as Walmart, McDonald’s and Target announced increases in their base salaries for employees. Why? Because the big players are competing to attract and retain a quality labour force, which is in short supply.
AND LET’S NOT FORGET ROBOTS
Today, inexperienced and unqualified workers are facing another threat: robotization.
Reprinted from CPAmagazine, August 2016, with permission from the Chartered Professional Accountants of Canada, Toronto, Canada.
Any changes to the original material are the sole responsibility of EPR Canada Group Inc. and have not been reviewed or endorsed by the Chartered Professional Accountants of Canada.