Minimum wage is a price control
In Saturday’s edition of this paper, Marni Soupcoff wrote an entertaining column about how Ontario’s fairly aggressive minimum wage increase had suddenly raised the costs of labourintensive goods and services for consumers — the ones, that is, who don’t benefit themselves from a minimum- wage increase. Child care, which is a very pure purchase of labour, is the example that is being exasperatedly discussed. The headline did not have “duh” in it, but that was the spirit of the thing.
Soupcoff pointed out that this not only could have been foreseen; an explicit warning of it was given in the pages of the Toronto Star, by the paper’s social justice reporter Laurie Monsebraaten. Our Financial Post section could perhaps easily be called the Social Injustice Gazette, but anyone at FP who got such an early jump on an economics story would be rightly pleased with himself.
Soupcoff ’s major point was that the broad-sense law of supply and demand is not some plutocratic swindle devised by the Monopoly Man and his fat- cat pals; even believers in “social justice” have to take it into account, as they take gravity into account when they are moving an old couch to a charity shop or sending cosmonauts into orbit. This is obviously right as far as it goes, but the words “supply and demand” are not enough, on their own, to predict the precise market response to a change in a price control — which is what the minimum wage is.
That, perhaps, is the true key point amid all the various ideological struggles currently in progress over minimum wage levels, which are being yoinked upward in Alberta as well as in Ontario. A minimum wage is a price control. The minimum wage is not really so much a labour standard as it is the abolition of labour bargains that feature a nominal wage below the minimum. And price controls are a blunt instrument. Most economists, whatever their political orientation, instinctively resist them.
The incidence of a price control — the precise place upon which the economic burden of it falls — is not, in fact, foreseeable without other information. In the market for hired child care, for example, it could turn out, with time, that the real effect of increasing a minimum wage is that some parents drop out of the labour market and tend to their own children. It’s just not what one would actually predict, because the need for professional child care is something that a family tends to plan for well in advance, with a longer time horizon than any government’s. ( Also, we haven’t invented dependable babysitting robots yet.)
Women, in particular, organize lives and careers around whether they expect their own labour force participation to be able to cover care expenses. Indeed, couples adjust family size for these expectations. We can even imagine circumstances in which a province’s extreme, credible commitment to a very high future minimum wage influenced birthrates.
But the demand for hired care is, in the short term, very inelastic. The incidence of a wage increase, however created, is bound to fall on families that cannot replace the care with their own effort. The families depending in some way on minimum- wage earners will get a corresponding benefit — unless the minimum-wage job goes out of existence (oops), or employers find some creative way of imposing the incidence on them while complying with the wage hike, as we see many doing right now.
The organized labour news website RankAndFile.ca pointed to an interesting example of that phenomenon on Wednesday. Some owners of pubs and restaurants, antagonized by the higher minimum wage, have been arbitrarily increasing the amounts that servers have to chip in to “tip pools” at the end of a shift.
Ontario’s labour regulations have been strengthened to prevent owners from withholding tips from servers for punitive reasons. But there is no regulation or restriction of the amount taken for tip pool sharing, nor oversight of the division procedure. ( There is, to indulge in polemic for a moment, only the “regulation” that the market imposes — the option of leaving Bad Boss A, going across the street to work for Less Bad Boss B, and sharing information about which is which.)
This is another case where a Toronto Red Star social justice reporter and a National Post Wormtongue for free- market predators can probably be heard going “Aha!” at the same moment, for different reasons. I read the tip pool story and reflect on the clumsiness of minimum wages as a welfare instrument, the inherent sluggishness of regulators in their arms race with businessmen, and the truth that there is no substitute for earning power as a means of securing good work conditions.
A union organizer reads the story and thinks, “How careless of the government not to have thought about tip pools, despite its otherwise glorious work! These regulations must be updated. ( Again.)” This seems to me not so much wrong — for tip pools, with their potential for disguised pure theft, are probably a perfectly proper subject of government regulation — as ultimately a bit shortsighted.
THERE IS NO SUBSTITUTE FOR EARNING POWER AS A MEANS OF SECURING GOOD WORK CONDITIONS.