Increasing minimum wage is not as simple as it seems

The Newfoundland and Labrador government recently announced a review of the provincial minimum wage by a panel including representatives of labour and employers.

Essentially this exercise is intended to determine whether to increase minimum wage above the mandated annual increase based on the consumer price index. While the panel representatives will represent the interests of business and labour, the public should be concerned as the debate often focuses on a call for a $15 per hour minimum or the concept of a living wage.

A dialogue on setting minimum wage levels is appropriate but must be undertaken with a comprehensive approach that does not limit discussion to troubling statistics and one-factor solutions. Many of the proponents of a $15 per hour minimum wages direct attention to the troubling reality that single-income minimum wage earners clearly fall beneath the poverty line.

If the only impact of increased wages was to improve living conditions for minimum wage earners then the review would be short and sweet, but the reality is not so simple. For many years, and summarized in a 2013 article by Stephen Gordon in Macleans, (https:// www.macleans.ca/economy/ business/want-to-help-thepoor-dont-waste-your-timewith-the-minimum-wage/ ) research has confirmed that increasing minimum wage is not a complete solution to improved living conditions.

The crux of the issue is government needs to create conditions where everyone can afford basic necessities and where business owners can operate profitably and provide jobs without increasing prices. Using data from the provincial government, basic math dictates that a 36 per cent increase in wages ($11.40 to $15) for the 13,200 minimum wage earners (6.4 per cent of the workforce) would force businesses to either increase prices or reduce labour costs to maintain operations. And costs will go up. Take for example a small business with 15 employees. If the minimum wage increases to $15, labour costs will go up by more than $100,000. And prices going up to cover costs is probably the more desirable outcome as the alternative is clearly a reduction of employee hours or business closures. As another business owner said businesses don’t have a magic button to increase sales when costs go up.

Some may cite studies that the minimum wage increases stimulate economic growth.

Of course they do, wage increases in the price of goods and services across the economy. And this inflation will be felt proportionately more by low wage earners, and distressingly, by another significant portion of the population — seniors on fixed incomes. So, it is conceivable that by raising the minimum wage, government will start a domino effect where those with restricted income pay more for necessities.

Complex problems can rarely be solved with simple solutions.

Chambers of Commerce in Newfoundland and Labrador urge everyone to recognize that raising the minimum wage is not an elegant solution to providing a living wage, it actually contributes to the problem. It is essential that the discussions that will take place include recognition that excessive minimum wage increases produce increased wage demands across the economy and new purchasing power will be offset by higher prices for everything including basic necessities like food and accommodations.

The business community and the public recognize the hardships faced by low wage earners and should demand government address the problem with measures that address the problems of education and training, affordable housing, and the impact of taxes on disposable income.

Only with this type of comprehensive approach can the province maintain the economic balance that allows entrepreneurs to establish and grow businesses in communities across the province

Chambers of Commerce urge the panel to adopt a broad perspective on their deliberations, beginning within informed understanding of who minimum wage workers actually are, what is needed to improve their quality of life and the full impact of changing the cost structure of labour. Let’s not increase costs and challenge the profitability that supports employment across the province.

Large increases in minimum wage will not provide a cure, only an incomplete treatment for one of the symptoms.