Hurting the poor with wage policies

minwagemodel

By Marco Navarro-Génie, President & CEO

Advocates of higher minimum wages often believe that higher wages alone will help lift people out of poverty. While on an individual basis there is a common but simplistic sense that this is true, the aggregated economic reality is different. Forcing wages up artificially hurts those who are employed in low-wage jobs.

Economies are vast collections of transactions and relationships that echo in various directions, often unforeseen.

A new study into Seattle’s minimum wage hike to $11 per hour shows results that were contemplated by market theory. Such results should give Atlantic Canadian (and Alberta) governments pause when suggesting $15 CDN per hour or more.

The study found that workers end up with less money in their pockets:

  1. While some workers made more per hour than before, fewer workers were employed in the same jobs.
  2. Many of those still employed before the increase were subsequently working fewer hours.
  3. There is an increase in automation of low end jobs.  McDonald’s restaurants, as an example, are now experimenting with the automation of food orders.

There is no magic involved in having predicted that this would be so.  When the cost of labour goes up, businesses with limited resources can purchase less of it.  One can afford less labour hours, so one cuts employee positions or the number of work hours if one keeps all employees.

In a robust economy like Seattle’s the net result is that forcing wages upward hurts those the policy claims to help, the poor.  In a region like Atlantic Canada where we already struggle with unemployment, the consequences of pushing minimum wages upward so dramatically could have dire consequences.

 

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