IS A NEW MINIMUM WAGE IN THE OFFING?

BE CAREFUL WHAT YOU WISH FOR

May 10, 2016

There has been quite a lot of discussion lately about the possibility of a new minimum wage level, either nationally or with respect to specific provinces.  Like virtually everything economic, there are pros and cons, supporters and detractors.

Many people are supportive of the idea, and it does seem like a good thing.  In theory.  Even at $15 per hour, it would be difficult for most earning that wage to live decently.  So, looking at things through that lens, it seems to be a good idea.  But looking at it in a big picture sense, is it?

For minimum wage workers, would a 40% or so boost in wages be attractive?  Of course.  This rather radical move has taken place in Seattle.  New York is considering the boost and the idea has been bandied about in the federal election campaign here at home.  I have heard some labour activists and union leaders say things like the minimum wage increase is fair and even that it will eliminate poverty.  The latter view is absurd, and the former questionable.  How does one define “fair?”  Fair to whom?

If we did in fact see such an increase in the minimum wage, the consequences would be significant.  Think about it.  Let’s say you own a business and the vast majority of your employees are being paid the minimum wage.  The minimum wage level goes to $15 an hour.  Your salary expense increases by roughly 40% overnight.  Your bottom line takes a big hit.  You may still be profitable, but much less so than before.  For many businesses, that bottom line profit will become a loss.  What do you do?  There are choices, and none of them are pleasant ones. It brings to mind the old saying “between a rock and a hard place.”  Taking a more macro view, any substantial increase in the minimum wage would definitely create more unemployment and fuel inflation.

So how close are we, really, to seeing a $15 per hour minimum wage?  The NDP has made comments about a national minimum wage at that level.  However, they have said that if such a change were enacted, it would only apply to federally regulated industries.  It is likely that such a change would not have a major impact, as relatively few workers in federally regulated industries are being paid minimum wage.

There has been commentary from the United States that a “one size fits all” minimum wage nationally does not make sense, given the very wide differences in regional costs of living.  Manhattan and Boise, Idaho are not exactly equivalent in terms of cost of living and in terms of what is a reasonable minimum wage.  Needless to say, the same geographical issues apply in Canada:  Vancouver vs. Saskatoon, for example. So while the idea has merit, there are many, many variables to consider before anything is implemented.

One thing seems clear, though.  Whatever the region we are looking at, a change like this will have significant impact.  Most affected may be food service businesses, many of which will not be able to withstand the additional cost without passing on most, or all of it to their customers.  If they feel they cannot do that, then staff will have to be thinned, and perhaps hours of operation reduced.  It really is a dilemma.  An increase of this magnitude may simply be the classic example of a game not worth the candle.  Perhaps a more gradual movement upward in the minimum wage would be a better approach.
Howard Goodman
President, HG Partners Limited
Director, Private Client Group &
Senior Financial Advisor,
HollisWealth Advisory Services Inc.

This article was prepared solely by Howard Goodman who is a registered representative of HollisWealth Advisory Services Inc. (a member of the Mutual Fund Dealers Association of Canada and the MFDA Investor Protection Corporation).  The views and opinions, including any recommendations, expressed in this article are those of Howard Goodman alone and they are not those of HollisWealth Advisory Services Inc.

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HG Partners Limited is an independent company. Scotiabank companies have no liability for activities outside of HollisWealth.