This week, Brian Pincott, one of the left-wing members of Calgary City Council (#yyccc) tweeted about an article published by his former co-alderman, Joe Ceci. This article espoused the idea that government should legislate a “living wage”. Let us examine a few points Mr. Ceci makes:
We’d need to begin by valuing all working people, and all kinds of work even those jobs that get called or might appear to be easy, menial, dead-end, entry level, unskilled—jobs that don’t come with a whole lot of respect. We’d have to believe that if the work needs doing, then those doing it should be fairly compensated—and by fair I mean they should earn enough to live on, such as a living wage.
The free market does a very good job of valuing work. Someone needs a worker and is willing to pay a price, and workers who need money will take the job. Are there low paying jobs? Of course, because there are jobs that are unpleasant or of low value because it doesn’t require significant skill, aptitude, education or ability. Now if you want to speak in terms of so-called “social” value – there is no good way to measure that, because it is subjective. Who gets to decide what is valued? Mr. Ceci? Me? You?
In Alberta’s major urban areas, a living wage, that is, a wage that keeps you above the poverty line, for a single person working full-time is $12.50/hr with benefits or $13.75/hr without benefits. That works out to a yearly salary of $22,750 with benefits. Not really an exorbitant amount of money when you think about it. However in Alberta, just over one in eight workers, or 234,200 people, earn less than $12/hr.
Here is the first problem – the poverty line of which Mr. Ceci writes is not a poverty line set based on the actual cost of living in Alberta’s urban areas. It is a statistical value generated by Statistics Canada called the Low Income Cutoff. This is an income equal to half of the mean income across the country or in a given region or province. The problem for Mr. Ceci’s plan is that if you raised the wages of all quarter of a million workers who make less than $13.75/hr, the Low Income Cutoff would rise accordingly, leaving a similar number of people below the poverty line. This technique only works if you eventually make it so everyone in the economy makes the same wage. This is called communism.
But what of the impact on our larger society? Wouldn’t life get prohibitively more expensive if those serving my coffee, bagging my groceries, pumping my gas were paid a living wage for their efforts? Probably not. Things might get a little more expensive, but there would also be corresponding savings in our shared systems—health care, social services, the charitable sector, justice—because people were actually earning enough to live on. Think about what happens when people don’t earn enough to live on: they load up with another job or jobs, they frequent food banks, need Christmas hampers, require the support of social agencies, they spend more time away from the home trying to gather resources to just get by, they don’t get enough rest or relaxation, and educational or skill upgrading are the last things on their minds. They live in stressful life situations and they aren’t able to participate as full citizens in society.
This is where Mr. Ceci makes further logical errors. Services where human workers are necessary and cannot easily be reduced would necessarily see prices rise. Of course, these would be prices for all consumers, including those who make the so-called living wage. If the living wage was calculated based on the actual “cost of living”, then it would continually rise.
The second failing in his analysis is that of whether higher minimum wages have a negative impact on employment. And the answer is that drastic increases in minimum wages must have a negative impact on employment. Higher minimum wages will mean that employers who require low-skill labour will find ways to improve the productivity of these newly expensive workers, so that they can operate the business profitably with fewer workers. This may be through changes in work processes, or automation, or a combination of both.
High minimum wages are a giant penalty on low-productivity and low-skill workers. If a worker cannot provide an employer with at least $13.75 of value, then the employer cannot afford to pay them that wage. And they won’t, or they will be out of business very quickly.
Lew Rockwell of the Mises Institute says it very clearly:
The debate over minimum wage laws goes to the core of how we view the relationship between economics and politics. Politicians who enact these laws imagine themselves as central planners magically bringing compassion and high living standards into being with the stroke of a pen. People who support the laws have a flawed view of the market process that sees exploitation behind all exchange relationships.
The actual reality is this: The minimum wage is a violent imposition on the freedom of association that harms all of society in the long run.