Living wage an issue of economic growth
Increase to minimum wage will cause a trickle-up financial boost
There is a battle being waged over the fate of the minimum wage earner. The battle rages all across North America, but has reached a particular pitch here in Alberta over the NDP’s proposed minimum wage hike to $15/hour.
The claim is that an increase will help the minimum wage earner in Alberta make ends meet and reduce poverty. This is countered by the fiscally conservative argument that, in fact, more harm than good will come from a minimum-wage increase.
The fiscally conservative claim that a higher minimum wage will increase unemployment or force small businesses and restaurants to close, and will be worse overall for the economy. Their answer is the old conservative standby: Keep money in the hands of the job creators by keeping wages low so they can create more jobs and projects, and keep corporate taxes low.
This money-for-the-jobcreators concept is a basic outline of what’s called a trickle-down economy. The idea is that as long as corporations and businesses are doing what they’re supposed to be doing — making money — that money will be used to employ more people. Those who are employed will have money to spend on needed and wanted items, stimulating the economy and causing growth.
There is, however, one immense problem: Trickledown economics does not work. A couple of findings by the Organization for Economic Co-operation and Development and the IMF have shown that for every dollar that goes into the hands of the already-haves, national GDP will grow by 38 cents. But for every dollar that ends up in the hands of the bottom 40 to 60 per cent, GDP will grow by roughly $1.20.
More charts show American GDP grew about $10.4 billion from the bonuses earned by Wall Street, but would have grown by $32.3 billion if the same amount had been put into the hands of minimum wage earners.
The principle is easy to simulate with a thought experiment. If Joe Ordinary is spending all his money on only the necessities, his contribution to the economy is limited, and the money only goes to the landlords and corporations that sell the food he buys. But if Joe has money over and above his necessities, he can start to buy more expensive things he needs or wants, and can contribute to the economy in more diverse ways — eating out, buying the latest gadgets, going to the theatre, or any related activities. A Walmart employee will start shopping at Walmart for clothes and household goods instead of just food.
As minimum wage earners earn more money, they will spend more money, because money in the hands of the lower to middle class has a higher velocity. And here’s the thing: that money will eventually trickle-up to the hands of the corporations that make our goods — right where the fiscally conservative wanted it all along.
Some 64.1 per cent of Alberta’s minimum wage earners are age 20 or older. That means roughly 58,500 Albertans are trying to earn tuition, support a family, or live through retirement on an amount of money that can’t support a decent life. The increase of impoverished students, families or seniors will cause a bigger strain on government spending in the long run.
But aside from the issues of poverty reduction and human dignity, the fact the economy will grow faster when the lower and middle classes have a bigger slice of the economic pie means, if a high minimum wage isn’t the answer, it’s the start of the solution. The debate should then centre on either how to mitigate problems from a higher minimum wage, or how to get more money into the hands of the lower or middle classes. Otherwise, we’re condemning the rest of the economy to sluggish growth at best, and our fellow citizens to an impoverished life. Jonathan Harline is a MacEwan University student and intern for Austin Mardon, PhD. Mardon has schizophrenia and received the Order of Canada in 2007 for his work advocating for mental health.