The Great Debates: A Higher Minimum Wage?

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Over this amount per hour do people fight a great struggle./ Sabrina Millis

Over this amount per hour do people fight a great struggle./ Sabrina Millis

Participants: Taras Matkovsky and Derek Cameron

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PRO

Taras Matkovsky – Op-Ed Editor

One of the great struggles of our time is the fight for a higher minimum wage. You’ve probably heard that leaders of all left-wing parties in the developed world are promising to raise or introduce the minimum wage. If you follow the news very intently, you might have even heard about fast-food workers in the states fighting to get the minimum wage raised to $15 an hour. Given that most workers today find themselves facing stagnating wages and rising prices for the necessities of life, such calls are understandable. Yet, these workers face criticism from the business community and its allies. In the wake of San Francisco fast-food workers getting their wage increase, business groups put up billboards with the message that they would be replaced by machines. In general, economists do not support minimum wage increases because they argue that increasing labour costs will lead to greater unemployment, as businesses could not support such an increase. They would also argue that a better means of supporting low-income workers would be to reduce their tax burden so that they would have more of their income left over. Despite this, workers and their allies are building momentum for minimum wage increases. I believe that a higher minimum wage will benefit workers enormously, because it will produce the most tangible results in the struggle for a better life.

Let us first consider the argument that a higher minimum wage harms workers, because it prices them out of the labour market. This is the standard argument made by orthodox economists, whether they have left-wing leanings (Paul Samuelson) or right-wing leanings (Milton Friedman). The reasoning behind this argument is that in the absence of a minimum wage, the workers and businessmen would determine the optimal market wage by competition. Where one firm offers too low a wage, workers will leave it to work at a more high-paying firm. However, this argument does not take into take into account the political dimensions of the labour market. Since businessmen like high profits, they do not like having to pay high wages to their employees. Consequently, they will lobby for government intervention to insure that the market structure is such that wages can be kept low. A very excellent example of this is Canada’s Temporary Foreign Worker program and the controversy plaguing it. The point is that one cannot rely on ‘natural’ market processes to raise one’s wage; this is why workers formed unions, amongst other reasons. While there may be a level of wages that businessmen cannot support, we can no longer let them define what that is. Their behavior since 1980 has been ruinous to the welfare of workers, letting their salaries rise to high levels while their workers’ stagnated. Raising the minimum wage can be a good way of telling them that they must support their workers, operate with reduced profit margins, and like it.

[pullquote]Raising the minimum wage can be a good way of telling them that they must support their workers, operate with reduced profit margins, and like it.[/pullquote]

The second argument worth considering is that are alternatives for workers other than the minimum wage. These alternative proposals can range from lower taxes for low-income people, increased education grants and investment in job training programs. All of these proposals represent a more sophisticated version of orthodox economic theory, identifying taxes and skills shortages as the reasons for wage gaps. However, it also does not deal with the political dimension of the labour market. Today’s push for a higher minimum wage is happening because lots of kids with college degrees find themselves unable to get a job. The effect of a surplus of skilled labour is the same as that of a surplus of unskilled labour. Plus, consider what a worker would be encouraged to work by. Would he/she be more encouraged from additional training for a job at a low wage, or would he/she be more encouraged by a larger paycheque? Workers have had to endure roughly 20 years of the alternative approaches and it is not satisfying them. Perhaps it’s time to adopt the direct approach.

Ultimately, the minimum wage increase is to be a first step towards real improvements for workers across the world. A successful struggle for the minimum wage will ensure that workers have the possibility of a better future ahead of them. Although it started with fast-food workers, there is no reason why it cannot spread to other industries. Nothing gives people greater confidence than a larger paycheque.

CONTRA

Derek Cameron – Contributor

Minimum wage is taken for granted by many people as the best fix for people working below the poverty line. Just raise the wages above the poverty line and everything will be fixed most believe and most advocate minimum wages as the Band-Aid for poverty. It is not that easy.

When you raise minimum wages, nothing changes but prices. The price of labour gets raised, and then inflation takes care of the wages of everything else. Since everything has been raised, you guessed it; the poverty line is raised too. If inflation does not correct for the deficit, hiring fewer employees will, according to an aggregate study by William Wascher and David Neumark. Their study shows that as “85 per cent of studies show negative effects on employment with minimum wage changes.” And that means people who were living below the poverty line are losing jobs and are falling even further from the poverty line. As inflation kicks in, the companies hire more people and the climb begins again – hardly the outcome expected or desired. If you are simply talking about improving incomes of the employed, minimum wage works short term but at the cost of the livelihoods of others in the long term.

So, if minimum wage does not give the outcomes people want, why perpetuate it? Politics is the main reason. Minimum wages sound good. Minimum wage raises get votes. And, finally, and probably most importantly, minimum wage is the established method. Most politicians believe it to be the best option, and in most cases, the only option. But governments should be searching for alternatives. There is one alternative that particularly excites me, the “Maximum Wage Law.”

The maximum wage law in question is called relative maximum wage. The government multiplies the wages of the lowest-paid worker by a certain number and that becomes the maximum wage allowed. For example, using a factor of forty, our current 10-dollar an hour minimum wage would result in a maximum wage of 400 dollars an hour, a healthy sum. Currently, however, most CEOs make “171 times more than their lowest paid employee,” with figures from the Canadian Center for Policy Alternatives, and that is a conservative estimate. This is the pay without regulation. Under these standards, a top executive makes a whopping $1,710 dollars an hour. Now, can one really say an executive does 171 times the work of an ordinary employee? I would doubt it.

[pullquote]Maximum wage presents a unique solution. It incentivizes companies to increase minimum wage without forcing them to accept a regulated minimum wage.[/pullquote]

Maximum wage presents a unique solution. It incentivizes companies to increase minimum wage without forcing them to accept a regulated minimum wage. Increase the minimum and you increase the maximum. Increase minimum wage of your company from ten dollars to eighteen dollars — the number cited as being the current poverty line — and you increase your top earners wages by 320 dollars an hour to a healthy 720 dollars an hour.

By enacting the legislation, pay inequality is reduced dramatically and companies’ profits still remain.

Critics of the maximum wage say that it makes people less likely to try and move up in the company and will reduce productivity. An increase from 10 dollars an hour to 400 dollars an hour, not an incentive: ridiculous. Students working minimum wage jobs will work pretty hard to ensure they move up the pay scale by twenty-five cents, incentive is not a problem. Others say governments should simply increase taxes. The rich can avoid taxes through lawyers and tax shelters. The poor simply cannot.

Minimum wage may be the standard, but we should be open to other options. They are out there. Minimum wage raises the bar for the rich and poor alike; inflation ensures that no real change in inequality occurs. Maximum wage, on the other hand, reduces the steep slope of inequality, as companies do not have to take a hit to their profits and thereby eliminating the risk of inflation. If prices stay the same while wages rise for the poor, they can be said to live above or at the poverty line. This is the goal of minimum wage, to improve worker outcomes. However, it is maximum wage that reaches the goal, not minimum wage.

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