Thursday, January 11, 2007

Downside of the Boom

Various folks continue to raise the red herring that raising minimum wages will hurt low paid workers. Somehow they will be worse off with higher wages, go figure, because small businesses will lay off workers supposedly ( despite studies showing that there is not a reduction in jobs after a minimum wage increase) or business won't higher students/unskilled workers, because they can't afford them. Sheesh, gimme a break.

Beating my head against a wall #1

There are times when I feel that I am beating my head against a brick wall. In Canadian Business (October 10, 1997) there is a column on school drop outs. I have always supported the concept of the minimum wage, so the argument that links minimum wage to school drop outs is not new to me. When I suggested to a die-hard Thatcher supporter in Britain that a minimum wage might be a good idea, I was told quite emphatically (with expletives thrown in) that I really didn't know what I was talking about. A recent study conducted by the University of Alberta examined minimum wage and drop out rates and found that money spent directly on education with the intention of reducing drop out rates is wasted. You see, the higher the minimum wage the more chance of students dropping out of school to get a job to earn money. It is an interesting argument.

These smart fellows seem to have missed the point that business can absorb the costs of rising wages, it's part of the costs of doing business, and is a cost that they write off as pre-tax operating costs. Which is why workers are variable capital. In other words it reduces their tax rates, workers wages and benefits are already a tax write off.

Which is why the Democrats in the U.S. congress did not get sucked in by the Republicans call for a tax break for small business and finally passed the U.S. minimum wage increase.

Which got the thumbs up from Lou Dobbs!
DOBBS: The Democrats -- the House today passed the minimum wage. Hallelujah!

Of course the Senate Democats having less of a majority may still give business an unneeded break.

Lets look at booming Alberta, where the base rate for workers is now between $8-$12 an hour. Business cannot find folks to work for less than $8 an hour at the low end despite the fact that the minimum wage is $7. In fact the average wage in unskilled work such as working at a 7/11 or at a local non union food wholesaler is $9.50 an hour and companies are offering a bonus of $700 if you stay with them for 1000 hours.

Still in Alberta even at these rates the cost of living needs means the minmum wage should be $10 an hour. The cost of living is a basket of goods, rent, food, utility, school, healthcare premiums, working people have to pay. That is the basis for calling for a $10 an hour minimum wage, not that it is a 'nice round number' like some smart folks assert.

Public Interest Alberta has released a report today that shows even in booming Alberta workers making $12 an hour are having a hard time making ends meet. And while as usual the call is to increase the minimum wage to PIA's credit they call for a Living Wage, as I have done here ad nauseum.

What boom?

Alberta social agencies and unions are calling on political leaders to "take off their rose-coloured glasses" and help families that are missing out on the boom.

They say it's a disgrace that 25% of Albertans are making less than $12 an hour and nearly 70,000 families are living below the poverty line in such a resource-rich province.

"There's a whole population of Albertans for whom the boom is little more than a faint echo," Alberta Federation of Labour President Gil McGowan said yesterday. "We think it's long past time our leaders acknowledge the fact that not everyone is sharing in the Alberta Advantage."

He called Alberta's $7 minimum wage "perverse."

Liberal employment critic Bruce Miller said it's hypocritical that MLAs' salaries are indexed to inflation but not the minimum wage or funding for disabled Albertans or others on social assistance. "I think it's deplorable," he said.

NDP critic David Eggen said the minimum wage should be immediately hiked to $10 per hour

A study commissioned by the advocacy organization, Public Interest Alberta, says single minimum-wage earners are taking home less than half the income they need to cover living costs.

But Employment Ministry spokesman Lorelei Fiset-Cassidy said the province is not considering hiking or indexing the province's minimum wage.

She said 97% of Albertans already earn more than minimum wage and Alberta just surpassed Ontario as having the highest average wage at $21 per hour.

But Judy Cook, 50, who makes less than $12 an hour after 14 years at a department store, told the Sun it's a struggle to get by on her income.

"I'm living worse now than I ever did," said Cook, who is renting a one-room basement suite in a friend's house. "I go nowhere and do nothing because I can't afford it. I have friends and family that help me out, but it's very tough."

Bill Moore-Kilgannon, Public Interest Alberta executive director, called on the government to adopt policies that ensure that contracts are only awarded to companies that pay "living wages."

The report, written by the Edmonton Social Planning Council, also calls for the minimum wage and funding for social assistance programs to be indexed.

The report demonstrates that Alberta’s minimum wage has not kept pace with inflation (now $7.00 compared to a high in 1976 of $9.50 / hour in 2005 constant dollars) and cannot be considered a living wage. It also provides the latest statistics showing that close to 25% of all employed Albertans earned less than $12/ hour in 2005. While not everyone earning less than $12/ hour lives in poverty, one in five Alberta families with children under 18 (68,700 families) earn less than Statistics Canada’s low-income cut off (LICO) before income supports.
It is interesting to note that where you have higher unionization rates you have less folks working for the minimum wage. That is because unionization leads the general market to increase its wages and benefits for all workers for two reasons; to keep unions out and to keep competitve with unionized businesses. Alberta and America share something in commong, low rates of unionization, which is why the minimum wage is low.

DAVID SHIPLER: You know, Jeff Rosensweig, at Emory University, did a little calculation that showed that, for the minimum wage in 2009 to have the same purchasing power as the minimum wage did in 1978, it would have to be $9.25 an hour, not $7.25.

One problem is the decline of union membership. It's lower now than it's been since the Depression. About 12.5 percent of American workers are in unions. And in the private sector, it's only 7.8 percent, which means we almost don't have labor unions in the United States, which means that the playing field is tilted.

You know, if you have a free market, in a really free market, the buyer and the seller both have to be on a level playing field. The seller of labor now is, at the low income levels, is not on a level playing field. They can't collectively bargain.

Now, there's a bill before Congress that's been there for a while, supported by a few Republicans in the Northeast, that would facilitate union organizing in the workplace. It wouldn't cost the federal government a dime to pass this. And it would probably help a great deal and a great many people, actually.

Gee that would be great for America, and it would be great if we had progressive labour laws in Alberta, like automatic union recognition, automatic first contracts and No Scab legislation.



Minimum Wage

Social Wage

Jason Cherniak


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Anonymous said...

The other point Eugene is that most people readily admit large corporations can absorb the costs (what's a few million?) but insist that it is small business that will suffer job losses because they won't be able to absorb the extra cost. Now I ask you this - have you ever run across a small business that creates a job even though the job isn't critical to the operation of the company? Of course not. Small business is built from scratch only adding extra jobs when it is simply impossible to continue to perform the tasks incorporated in the new position with existing resources. As a result, an increase in minimum wage won't cause the job to be eliminated, the cost will simply be absorbed.

If a higher minimum wage does result in job losses, chances are the higher wage is more of an excuse to eliminate a position already on the chopping block due to the positions inability to contribute profit or other benefits to the overall company. In other words, a higher wage eliminates only those positions that should be eliminated anyways.

eugene plawiuk said...

And when folks talk about small business they really aren't talking about business that employees folks, as you point out. They are talking about mythical mom and pop businesses the corner store or small corner cafe, which are rapidly disappearing going the way of the corner hardware store, replaced by a MacDonalds or Home Hardware. Small business that cannont afford staff are mom and pop businesses, and they never intend on hiring anyone other than their family members who work for free, though like the family farm if you do pay them its still considered a tax write off. In fact listening to the farm program on CKUA here the other day, a tax specialist reccomended farmers pay their kids, since the kids can earn up to 18,000 tax free, and then write off their salaries as a tax savings.

AwaWiYe said...

>business can absorb the costs of rising wages, it's part of the costs of doing business, and is a cost that they write off as pre-tax operating costs. Which is why workers are variable capital. In other words it reduces their tax rates, workers wages and benefits are already a tax write off.

It doesn't reduce tax rates; the income tax rates for businesses are fixed and in most (if not all) jurisdictions are flat. Expenses (including wages) are removed from gross revenue before taxes are assessed. Call the result the pre-tax income. What is left after taxes is, simplistically, profit.

If wages increase, then expenses increase. This makes the pre-tax income smaller, which in turn means the profit is also smaller, regardless whether the tax rate is flat or progressive.

This is all simple stuff you'd recognize by analogy if you've ever filled out a T1. There are certain expenses you may deduct from your gross personal income before you run your net income through the tax calculations. Paying a dollar more in expenses while holding your gross income (revenue) constant doesn't make you a dollar or any fraction thereof richer; the whole dollar paid for expenses. If you reduced your expenses by a dollar, then the dollar would pass through to become part of your net income and you'd pay a fraction of it (call it "F") in taxes. Your bottom line would be enriched by amount 1-F.

Matt said...

Please remove all links to my blog from your site. After your fantasy-inspired post on child-brides I want no ties to this website, even if it's a mere link. There are many other posts on Blogging Tories against raising minimum wage, and I would appreciate if you would use someone else's. Thanks.

eugene plawiuk said...

Well gee Matt you will still be linked here because you left your comment. Thats a conundrum ain't it. And if you didn't like my post ya shouldn't have linked to it in the comment.

Anonymous said...

How else would you know what site not to link to?


regular reader said...

thanks matt, that needed to be said

eugene plawiuk said...

Two more trolls not addressing the point of the article in question.

eugene plawiuk said...

AwaWiYe said "If wages increase, then expenses increase. This makes the pre-tax income smaller, which in turn means the profit is also smaller, regardless whether the tax rate is flat or progressive." Sounds like Marxism to me. You are correct, which is why wages cut into profits, the very profits they help generate. However wages are not the highest cost of doing business, and depending upon the businesses taxes can be deferred.