I live in Ontario, Canada. Kathleen Wynne, our premier, recently announced plans to raise minimum wage to $14/hour in 2018 and then again to $15/hour in 2019. While it seems well-intentioned, this kind of increase has a number of ramifications. If the goal with a higher minimum wage is equity, or redistributing wealth, it will almost certainly fail in those aims.
Employers will be forced to minimize their staff more than they already do. This doesn’t necessarily correlate directly with unemployment levels in the short-term, since employers haven’t yet met the challenges of sustaining employees at higher wages. In the long-term though, this means more unemployment among young and low-skilled workers, and therefore more reliance on welfare or other social safety nets.
Prices on many goods will increase, especially essential goods and services since many of the heavily affected sectors will be in the service industry. This means much of the effect of a higher minimum wage for those who actually do benefit will be mitigated by living costs. This doesn’t mean it won’t benefit these groups, just not nearly as much as it might appear to.
I’ll start off by saying I have nothing against automation. Unfortunately, automation tends to replace the jobs of those same groups who might already be struggling to keep their job after a minimum wage hike. Large multinationals are the ones with enough capital to be able to invest in automation, and a dramatic increase in minimum wage drives such investments. Most small businesses are unable to gather the kind of capital necessary to automate and are therefore forced to look for alternatives, and in the worst case scenario that could mean shutting down.
A surge in automation development, keeping up with inflation, multinationals outcompeting smaller, less efficient businesses, cutting low-skilled workers from the labour force, a possible stimulus effect, these don’t sound so bad, do they? I’m skeptical of these impacts, but maybe you’re supportive of these kinds of changes. Whether you are or not, I think it’s important to express to voters that this increase will help a select group of individuals who are able to hold onto their jobs and offset price inflation with this higher wage. I can’t help but feel this is being sold to voters in a different light, with moral underpinnings of sorts. People currently making around $15-$20/hour may find their raise (if they get one) not proportional to the minimum wage increase and therefore their job skills effectively devalued.
I’m often supportive of policy enacted to combat poverty, but I’m not so sure we should encourage people to try to raise a family on minimum wage, or that this hike will actually reduce disparity at all. Maybe further considerations and experiments could be made regarding mincome or some sort of better negative income tax.
Here’s some more articulate discussion on this topic.