Why a guaranteed minimum income is a better option than raising the minimum wage

Posted on January 6, 2018 in Policy Context

NationalPost.com – Opinion – This is the fundamental weakness of the minimum wage: you can force business to pay their employees more, but you can’t force them to hire them
January 5, 2018.   Andrew Coyne

The continuing fracas over the minimum wage — Ontario, which brought in a 21-per-cent increase overnight on Jan. 1, is where the argument runs hottest, but similar debates are raging across the country — is one of those illuminating moments where you learn how people think about the economy: how they think it works, and how they think it should work.

Indeed, opinion on the minimum wage shows a remarkable congruity between how people think the economy works and how they think it should work. Ask whether the minimum wage should be increased in any poll, and you will always find an overwhelming majority in support. People support the minimum wage because they think it works: they think the increase will result in a transfer of income from employers to low-wage workers. Government has only to demand that business pay and it will, in the same way that it has only to declare that the increase is intended to benefit the poorest for that to be the result.

This is noteworthy, when you consider how cynically the same people will respond when asked, more generally, how government works, or how politics works, or how the economy works. Yet somehow that cynicism is put to one side when it comes to the minimum wage. It should work, so it does. Business should pay, so they do. It’s supposed to reduce poverty, so it will. Such is the strength of this belief system that people are quite unable to deal with evidence to the contrary. They grow offended, or they get angry. The one thing they do not do is change their minds.

You can see this in some of the responses as business begins to take action to insulate itself from the effect of the increase: that is, as employers begin the wholly predictable process of ensuring that, whoever pays for this sudden legislated increase in the unit cost of labour, it is not them. Minimizing labour costs, after all — getting by with as few employees as they possibly can — is what profit-maximizing employers do 24 hours a day. It is practically all they think about.

And so it could have been no surprise to anyone when a number of employers — Tim Horton’s was singled out for scorn, but only because the Ontario premier saw political advantage in it — began taking steps to offset the increase in hourly wages: in the initial stages, by cutting back on hours worked, or by reducing other benefits. Over the longer haul, they will implement other measures, with equal predictability: substituting machinery for labour, where possible; in some cases raising prices, though minimum-wage workers are typically employed in intensely competitive, low-margin businesses where there is little scope for price increases.

This is the fundamental weakness of the minimum wage: you can force business to pay their employees more, but you can’t force them to hire them; you can dictate how much people may earn in an hour, but you can’t dictate how many hours they will work. The policy comes with a built-in escape hatch, which employers have every incentive to make use of.

Exactly how many tens of thousands of jobs will be lost, or never created, is the usual forest of conflicting studies. But no one, or no one sensible, denies there will be some: whatever cherry-picked research paper or tortured assumptions may be advanced to the contrary, employers are not wholly impervious to the price of labour. (Or if they are: why stop at $14 or $15 an hour? Why not $50? Or $100?) Ordinarily jobs, lost jobs in particular, are a hot topic. Let a single factory close because of international trade, lay off a couple of hundred workers, and the talk is of nothing else for weeks. But bring in a policy that will destroy the equivalent of 300 or 400 factories’ worth of employment and … well, what has been the response?

Somehow cynicism is put to one side when it comes to the minimum wage

One common response is simply to change the subject. “If your business model depends upon paying people less than $15 an hour, maybe you shouldn’t be in business” is a popular refrain, particularly among people whose jobs do not depend on that same company staying in business. In a similar vein are those invocations of mock-pity for the poor, struggling megacapitalist, or calming assurances that the economy will not “collapse” as a result, as if either were the issue.

The more intriguing response is to acknowledge that some will lose their jobs, but to point out that others will see their wages rise. Didn’t that same Bank of Canada study with that centre-point estimate of 60,000 jobs lost nationwide from all those provincial minimum wage increases also say that the combined effect is an overall increase in labour income? Yes, it did. But is that really a trade-off we want to entertain: increasing the wages of those already in work — many of them earning more than the legal minimum, since wage bargaining is often based on the difference between the negotiated wage and the minimum — at the cost of locking others out of a job altogether? Shouldn’t we attend first to the welfare of those worst off?

This would be a more insoluble dilemma if there were not a preferable option available. Rather than blithely decreeing that employers must pay their employees an amount the rest of us think appropriate, and hoping it all works out for the best, the option is open to us as a society to put our money where our mouths are: to finance a decent minimum income for all with our taxes — which unlike wages are not so easily avoided. Maybe this latest increase in the minimum wage will prove less harmful than feared, but it is certain to be more harmful than the alternative: a minimum income, socially guaranteed and socially financed.


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