There has been a lot of talk about increasing minimum wage in Alberta ever since the NDP was elected to a majority government. The current minimum wage in Alberta is $10.20 per hour, unless you're a liquor server. If you're a liquor server, it's $9.20 per hour because you are supposed to make decent tips serving alcohol. The government wants to increase minimum wage to $15.00 per hour by 2018. The government feels this will reduce poverty in Alberta, but in reality it will actually increase poverty for families. It will do absolutely no favours for minimum-wage earners, and it will do severe damage to rural economies in Alberta.
The Flawed Logic
Few people remember it, but the New Democratic Party actually used to be called the Communist Party. They are considered much more socialist than communist in this age, but we are already seeing the beginnings of communism from this government. Think back to junior high social studies. The first thing that a communist government does when it comes into power is called Redistribution of Wealth. While this sounds like a wonderful idea to the lower class, a cool idea to the middle class, and a terrible idea to the aristocracy, it truly is just a bad idea on the scale of a province. Trying to redistribute wealth in a province of a much larger country will simply drive the wealthy to other jurisdictions. Alberta has been thriving for decades largely because other provinces have tried to redistribute wealth, and that has driven the wealthy towards Alberta.There is a saying among the proletariat classes: "From below, everyone above you just looks like an ass." We resent the wealthy because we are envious of what they have. Step back and take a look at the larger picture. It is the wealthy who invest money in our province. They pay taxes (although arguably not enough), they invest in charities, they spend money on community initiatives (parks, etc), and they are the members of service clubs. I am a Rotarian, and when I joined Rotary, I heard the joke that some clubs are considered ROMEO's. That stands for Rich Old Men Eating Out. That is a large part of what several service clubs do with their time, but it's at those dinners that they discuss where they can invest their money and volunteer their time to help people. So many communities around the world have benefitted from the wealthy spending their time in clubs like Rotary, Lions, Kin, Knights of Columbus, Stonemasons, Kiwanis, and so many others. These clubs aren't exclusive to the wealthy by any means, but it's definitely the wealthy that provide the lifeblood and make the initiatives of these clubs possible. If the wealthy all move to other areas of the country, or other countries, we will only suffer as a whole. We all want a bigger piece of the pie, but it's there to earn. Take careful risks, make good choices, get educated, and make it happen. Don't rely on electing the right person to legislate it to you. That's lazy, weak, and whiny.
The main idea behind increasing the minimum wage to $15.00 per hour is that the "living wage" in Calgary is $17 and change. Those in favour of a minimum wage increase argue that you cannot make a living and support your family on the current minimum wage. In order to live in relative comfort, you must make at least $17 in Calgary. The main problem I have with that is that I don't think anybody is actually expected to make a living and support a family on minimum wage. Minimum wage jobs are meant to be entry-level jobs for people who are just joining the work force, and they have minimal skills, minimal experience, and minimal employability. These people are youths, students, underachievers, or people that have fallen on hard times. The kid pumping your gas, or carrying your groceries, or sweeping your shop floor are the ones who are making minimum wage. They are learning what it's like to be in the workforce, to be part of a team, to show up on time, and to learn to earn more. That's what these jobs are meant for. As the people in these jobs learn, they will receive wage increases, or promotions and no longer be minimum wage earners. As they improve themselves with knowledge, experience, and education, they will make more money. If they don't make more money, they will leave the job they're at and go work for someone else. Wages are policed by Adam Smith's Invisible Hand of Capitalism, because if you're not happy with what you're making, you're going to work for someone who's paying better. It should not be the government's role to police wages. The exception to this is servers, who rely mostly on tips, and as a result can make just as much money as anyone else, if they're good at what they do and work in a busy restaurant or bar. However, higher minimum wages will destroy these restaurants and bars, so servers won't be able to make any money at all, will they?
The Wage Scale
In a blog post I wrote a few years ago, I alluded to the concept of "relative wage." Someone else may have come to this concept before me, but this I conceived it on my own, so if my theories don't mesh perfectly with what you've already read in an economics textbook, it's because I didn't read that textbook. My theory is that all wages are relative to the minimum wage. If you make $12 per hour, but minimum wage is $5 per hour, your wage is $7 per hour relative to minimum wage. Imagine wages as weights on a scale. When you weigh food on a scale, you have to zero the scale first, right? If you're going to weigh soup in a bowl, you must first put the bowl on the scale, and zero it. That way when you measure the soup, you get only the weight of the soup, not the bowl. Minimum wage is that zero point. If you make $20 per hour, with our current minimum wage of $10.20 per hour, your relative wage is $9.80 per hour. If we change the zero point by increasing minimum wage to $15 per hour, your new wage is $5 per hour. Does this still sound like a good idea?The most obvious myopia of increasing minimum wage is that it will devalue everyone else's wages. For instance, I have worked the same job for almost 5 years, but I haven't seen a wage increase. Even though minimum wage has increased 3 times in the past 5 years, my wage has stayed the same. I suspect that is the case for a great many people. My relative wage has actually decreased 3 times in the past 5 years, and yours may have, too. Unless you work for a very generous employer who has increased your wage at a rate higher than all the minimum wage increases that have been imposed on us, then your relative wage has also decreased. The naïve people of our middle and upper classes think that increasing minimum wage will cause employers to increase everyone else's wages, too. We're just redistributing the wealth, right? Wrong.
The Effect on a Rural Economy, and the Hospitality Industry
In a hypothetical anecdote, I'm going to refer to a shoe store in a small rural town, not unlike my current town of Taber or my home town of High River. Jane has been running this shoe store since the mid-90's, and employs 5 people. She has 2 high school girls working in the evenings, making minimum wage, 2 people in the daytime making a relative wage of $7, and a manager responsible for the scheduling and helping with administration, making a relative wage of $12. It's a fairly prosperous business, and she pays herself a relative wage of $18 and she supports her family on that. Of course, minimum wage is $10.20, so her students make $10.20, her full time salespeople make $17.20, her manager makes $22.20, and she pays herself $28.20. This is a decent situation. The government increases minimum wage to $15. Legally, she has to pay her students more, so they get a raise up to $15 immediately. This comes directly out of her own pay of $28.20, so now she makes $12.60. (hey! She is paying herself less than minimum wage!!! Who is going to protect her from that?) She wants to give her other employees a pay increase to be fair to them, so she increases the price of shoes. Because every other store owner in town is doing the exact same thing, the price of everything is going up, so people can't readily afford to buy new shoes at the increased price. She starts selling fewer shoes. One of her full-time sales people is dissatisfied with a relative wage of $2.20, so she quits, leaving the owner short-staffed. She doesn't save any money on that because, she is now selling less product. She ends up closing in evenings because she can't afford the minimum wage of her students, so they're now without work. Again, she doesn't save money because she's not selling any shoes in the evenings, now. Our heroine continues to try selling more shoes at the higher price so she can pay her staff more and still support her family. She can't. Eventually, she gives up. What choice does she have? Next week, she is selling shoes for Wal-Mart in Calgary for $17, because that's the only possible way she can support her family. Every small business owner in my hypothetical town goes through a similar problem, so now my hypothetical town becomes a shadow of its former self, employing nursing home workers because retired seniors are the only people who can live there.This sounds like a worst-case scenario, but I'm seeing evidence of it happening already. Take a drive through downtown Taber. How many empty storefronts do you see? SAAN is gone, the Bargain Shop is gone, the men's clothing store is gone, so many stores are gone! There are other factors, but I promise this is a big one. It's not profitable to own a small store anymore, so nobody does. When your store can only afford to pay you less than you'd make at Wal-Mart, you go work at Wal-Mart. It's the only thing that makes sense.
