Common Sense Comes to Town!

Common sense is the most fairly distributed thing in the world, for each one thinks he is so well-endowed with it that even those who are hardest to satisfy in all other matters are not in the habit of desiring more of it than they already have. (Descartes)

Mimimum Wage: Myth and Reality

Posted on | December 17, 2011 | 6 Comments

The recent $0.25 hike in minimum wage in Quebec has received, as usual, the typical lot of criticism, worries and other misinformed statements by people who should otherwise be able to get their facts straights. Let’s bring down a few myths and state a few facts on this topic.

1) A higher minimum wage encourages high school drop-outs

This is a good example of an argument design to scare people while claiming to pursue apparently noble ideals. Does it hold against scrutiny? Lets compare tendencies of drop-out rates in Canada and the evolution  of minimum wage in various provinces (page 2). An important detail : the drop-out rates statistics range from 1990 to 2010, while the minimum wage increases are recorded between 2000 and 2010. Nevertheless, the immediate appeal of increased wages should normally reflect on the number of drop-outs.

But to the contrary, the province of Newfoundland manage to bring down its drop-out rate by 12,5 percentage point (a drop of almost 60%) while increasing minimum wage 1,63$ in real dollars. Meanwhile the drop-out rate in Quebec decreased of 5,7% (from 17,4% to 11,7%), or about a third, while minimum wage only rose by 0,68$ in real value. The drop-out rate tendency is similar in Manitoba (from 16,0 to 11,4%) while the minimum wage increase was twice as high, at 1,35$.

So all things being equal, the two factors aren’t correlated at all. Such a claim is blatantly false and disparages the hard works of all those endeavouring to target the real causes of high school abandon.

2) Minimum wage has a negative impact on work

This is another sacred cow! If people are paid more, obviously they won’t work as hard, won’t they?  Let’s therefore compare the evolution of work productivity (from 1997 to 2008) and the evolution of minimum wage (from 1999 to 2009). I’d like to match the sampled years perfectly, but the data still holds.

The most noticeable productivity increase happened in Newfoundland, where the minimum wage increase was also the highest. British Columbia, Quebec and Ontario are the three provinces with the lowest minimum wage increases, and are also three out of the four provinces with the lowest increase in work productivity.

So in opposition to what the valiant defenders of free markets claim, an increase in minimum wage actually has a positive impact on work productivity. Could it be that better paid employees have less financial worries, and are consequently in a better disposition towards their employer? This is just a hypothesis, but at least it is backed by statistics.

3) Minimum wage is harmful to small businesses

The argument is that an increase in minimum wage is an unsustainable shock for small businesses. But a $0.25 increase in wage is not even 3%. For a 40-hour workweek, this means exactly 520$ yearly, which in itself does not put anyone out of business.

In fact, such an increase could actually wield benefits for small company. In a limited-size work market, a large employer could increase by a few pennies its wages in order to attract more skilled employees. A higher minimum wage levels the field for everyone, large and small companies alike, no matter what their means are.

4) A few facts

In Quebec 62% of workers who are paid minimum wage are women. The retail and restaurant sectors combined represent about two third of minimum wge jobs. In the past two years, the number of minimum wage workers increased from 197 800 to 231 300. Some will claim that the increases of the past years have caused this number to spike. If this is true, it means that a lot of jobs are actually paid but a fraction above minimum wage, which is not really interesting. These jobs are mostly occupied by woman, pointing to a lack of equity between the two genders in the workplace.

Far from causing prejudice, increasing minimum wage is therefore a tool that lowers social inequity and leads the market towards fair and just practices.

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