Demystifying the minimum wage

Demystifying the minimum wage

On October 1st the Alberta minimum wage went up to $13.60 from $12.20 an hour. This is expected to go up again on October 2018. This is part of the current NDP government’s promise to ensure that workers will earn enough for their day-to-day needs. In an interview with CBC on September of last year Labour Minister Cristina Gray said “”We are committed to supporting to our low-wage Albertans, people who are working full-time jobs and are still not able to make ends meet,” However, Business and industry groups and opposition have been critical. The United Conservative Party (UCP) were concerned that this will cost lots of jobs by putting pressure on wages across the board. That it might force some employers to cut workers’ hours or terminate their employment. The Canadian Federation of Independent Business (CFIB) in Alberta has led the opposition to the wage increases. They argue that the raise will result in a loss of between 50,000 to 180,000 jobs, due to increased costs to employers. And, they say, it won’t reduce poverty.Let me answer some of the myth on minimum wage.

Myth: Raising the minimum wage will hurt the economy
FACT: Many economists support higher minimum wages. In May 2014, The Economist, a British financial magazine, said that it had been wrong in opposing minimum wage increases: “No-one who has studied the effects of Britain’s minimum wage now thinks it has raised unemployment.” There is little evidence to show that raising the minimum wage hurts the economy. Raising the minimum wage is good for the economy. When workers have more money in their pockets, they tend to spend it in their communities. Higher wages means workers have the income necessary to support local businesses. Supporting local businesses strengthens the economy and stimulates employment. Clearly, what small businesses need most are customers; that’s why raising the minimum wage now would make good economic sense.

Customers create jobs. Businesses hire more staff only when they need to provide more services or make more things to sell. That’s why workers with money to spend on goods and services are the real job creators. In fact, consumer and household spending (the spending made possible due to wages) supports more than half of Canada’s total economic output. In other words our ability to spend money on goods and services keeps Alberta’s economy afloat. Its good for our economy.

Myth: Raising the minimum wage will just make everything more expensive
FACT: According to Statistics Canada, between 1975 and 2013 after adjusting for the effects of rising prices, the minimum wage increased by only one single penny. Yet the prices of food and housing have increased much faster. For example, between 1980 and 2010, average home prices increased 400% faster than after tax income. Between 2007 and 2012, the price of food increased nearly twice as fast (19%) as other goods (10.7%) and about four times faster than average wages (5%).Increases in the price of food and housing hurt low-income workers more because such workers need to spend a higher proportion of their wages on shelter and food. This means that the historical increase in prices of food, shelter and products have a very little to do with wage increase.

MYTH: Raising the minimum wage will cost low-wage workers their jobs.
FACT: there is resounding evidence that raising the minimum wage is not a major job-killer. Economists doing cutting-edge studies have found that the typical minimum wage increase does not cause overall job loss. They say “job loss is more of a threat than a theory.” There are lots of reasons why a higher minimum wage would not affect job numbers. First, economies around the world, including Canada, are still stagnating after the last financial crisis. The rich keep churning billions from higher real estate and stock prices, but little of this money goes into the local economy and productive investment. In contrast, low-wage workers spend most of their money in their communities. A $15 minimum wage would pump billions of dollars into the Alberta economy, thus stimulating new demand and creating jobs, even if some businesses that could only function by paying poverty wages had to (rightfully!) cut back with better employers taking their place.

Raising the minimum wage also has lots of effects on the job. When the minimum wage goes up, workers become more valuable to businesses and jobs generally get better. Workers get more training and there is less turnover. Businesses can put more energy into raising efficiency.

MYTH: Raising the minimum wage will hurt small business.
FACT: The local economy benefits the most when the minimum wage goes up. When workers who were struggling to make ends meet get a raise, they immediately put their wages to work where they live. With a raise, more and better groceries are suddenly affordable, as is going out to that new restaurant around the corner or catching a movie. An economy cannot work if more and more people are in poverty. While workers need businesses for their jobs,don’t forget that businesses need workers to buy their products. A higher minimum wage can produce a vibrant local economy.

The economic scare-mongering is in contradiction with the evidence that has led most mainstream economic experts to support higher minimum wages as one element of a poverty and inequality reduction strategy. The conservative view is that increases in minimum wages raise the price of labour and thus result in less employment. On the contrary, higher minimum wages can actually be good for business. As the Alberta Federation of Labour President, Gil McGowan says “The bottom line is that increasing the minimum wage to something close to the living wage is a win-win for both workers, their families and the economy.” Look forward to the $15 minimum wage in the Province or Alberta on October 1, 2018.

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