Saskatchewan’s bottom-feeding minimum wage needs a big boost

The Labour Day Report | by Paul Dechene

Saskatchewan’s minimum wage is set to rise on Oct. 1 to $11.06 per hour. At that point, our province will have the second lowest rate in the country, edging out Nova Scotia’s $11. Whoopee!

Meanwhile, Alberta, Ontario and British Columbia are on course to have $15 minimum wages over the next few years. With those economic powerhouse provinces blazing the way, there are renewed calls here at home for Saskatchewan to follow suit.

I mean, how are we supposed to compete for young labour if McJobs pay 36 per cent more one province to the left?

But whenever someone starts talking about raising the minimum wage, right-wing think tanks and local Chambers of Commerce crawl out from under their desks to scream about how every extra cent the government mandates businesses pay their workers walks us closer to economic apocalypse.

The chief talking point, invariably, is that raising the minimum wage will increase unemployment. And undoubtedly, they’re thinking of a graph that looks like the one my kid drew for this story.

If you’ve taken Economics 101, this should be familiar. What it says is that as wages rise, the demand for labour falls while the supply of labour increases. This is because workers always want to earn more money while employers never want to pay more if they can help it.

Labour supply and demand meet at the “E” — this is the equilibrium wage as decided by the invisible hand of the market.

Minimum wages, however, distort that market. The government comes along and says, “Let’s set the minimum wage above the equilibrium” — that’s the dotted line. This higher wage inspires more workers to offer up their labour to the market. But it also discourages employers from hiring more-expensive employees. The end result is that portion of the line labeled “U” — which stands for Unemployment.

This graph is the standard labour market model that every economics and business undergraduate learns. And this conception of the market underpins every minimum wage discussion.

Too bad the graph’s kind of rubbish. [1]

Kelly Foley, a professor in the University of Saskatchewan’s economics department, says reality isn’t as simple as this graph would have you believe.

“If a market is competitive then everybody gets paid exactly their value, in theory,” says Foley, “so a market is competitive if there are lots and lots of buyers and lots and lots of sellers, and nobody has exclusive access to an important resource.

“The Econ 101 view of minimum wages — where, if you increase the wage, demand for labour goes down so you’ll have more unemployment — is often based on a view that labour markets are perfectly competitive. But they’re not.

“In most cases they’re not even approximately competitive.”

While you can argue a minimum wage “distorts” a labour market, workers on the lower end of the pay scale participate in a market that already comes pre-distorted. Employers hold a lot of excess power. Foley points out that labour is typically not very mobile.

The theoretical workers that make up Econ 101 graphs are free to move to where the good jobs and better wages are. Real workers have kids in school, spouses with careers and lives outside of the parameters of an academic model.

And employers have other advantages — such as what happens when there’s only one employer, or a very tiny number of them, in a market.

“When there’s only one buyer, that’s monopsony. Think about a company town — a town with only one industry,” Foley says.

And in a monopsony or near-monopsony, labour’s ability to compete for better wages is severely limited because the employer can set whatever wage they want.

This monopsony situation can develop even outside of these stereotypical company towns.

“Employers find ways to reduce the competition for workers through these non-compete clauses,” says Foley. Non-compete clauses are agreements bosses make their employees sign as a hiring condition that limit a person’s ability to go work for another employer in the same market.

Foley says these were typically reserved for employees working with trade secrets but nowadays, she says, even fast-food franchises include non-compete clauses in their employee contracts. [2]

Basically, the more you scratch at a labour market, the more you uncover new and interesting ways in which they defy simplistic models.

And once the data is collected, it turns out minimum wages confound common-sense assumptions about their negative impacts on the economy.

There have been multiple studies on how minimum wages affect employment. The results are divided. Sometimes minimum wages don’t impact employment at all. Sometimes they increase unemployment slightly. And sometimes they even correlate with increases in employment.

Then there are the two recent meta-studies that compile results from multiple analyses and found no overall impact on employment. [3]

Hardly a slam dunk for the Econ 101 model. And while the data may be mixed, one thing is certain — the doom and gloom predicted by Chambers of Commerce and right-wing think tanks never seems to come about.

Andrew Stevens is a professor of industrial relations and human resource management in the University of Regina’s faculty of business of administration. He’s also the author of “The Fight for a $15 Minimum Wage in Saskatchewan,” a paper for the Canadian Centre For Policy Alternatives. [4]

Stevens points to places like Seattle, where the $15 an hour minimum wage has been implemented.

The sky hasn’t fallen.

“You had these very orthodox economic models saying [catastrophe] would happen,” says Stevens.  “And by the way, those orthodox economic models have been predicting catastrophe for a hundred years because they opposed minimum wages when they were introduced and for a century they’ve opposed minimum wages. If you follow that economic logic, capitalism should have been dissipated by now. In fact, in Saskatchewan, the minimum wage did go up and the economy grew here.”

Stevens also isn’t convinced by fears that small business will bear the brunt of a minimum wage increase.

“The reality in Saskatchewan is that most people work for large corporations with 500 or more employees,” says Stevens. “They might be franchises, but they’re not mom-and-pop organizations. They’re Tim Hortons, they’re A&W. We’re talking about large multi-national organizations in many respects being the major drivers of employment here.

“Maybe we should question this sacredness of ‘small businesses’?” asks Stevens. “We need more businesses that are generating meaningful forms of employment and living wages.”

Ultimately,  a decision on whether or not to increase the minimum wage should be driven less by trumped-up fears of economic catastrophe and more by what an increase means for people earning wages around the current floor.

“[A minimum wage] is a tool that has costs and benefits,” says Foley. “My view is that the costs are small relative to the benefits. That of course is partly based on my reading of the empirical evidence but also based on my own personal intolerance for inequality.”

And one thing that the data bears out is that an increase in the minimum wage will shift buying power to those earning the lowest wages in an economy.

The myth is that those minimum wage earners are spotty teens slinging burgers but again, reality defies assumptions. Foley points to a study of BC’s minimum wage earners that found that 82 per cent are 20 years old or older, 68 per cent don’t live at home, 51 per cent work for large corporations and 60 per cent are women. [5]

Foley also argues that now, when our minimum wage is so low, is a good time for a shift upward. Despite government claims to the contrary, the Saskatchewan economy is still doing fairly well and more workers are earning above the current minimum, which gives businesses breathing room to adapt to a new minimum. And theories suggest a stronger minimum wage could strengthen the economy.

“One of the positive theories of minimum wages is that in the long run it’ll lead to an economy that has less turnover and higher quality workers,” says Foley.

Stevens says Saskatchewan needs a $15 an hour minimum wage right away.

“There’s never a bad time for workers to struggle for a bigger slice of the pie. There will never be a moment when the government in this province — the Saskatchewan Party especially — will concede, ‘Yeah, now is a great time for $15 an hour.’

“Even in the glory times, a boom period that we might not see again for decades, even then, no one would have said, ‘Yeah we need this.’ Businesses will under all circumstances oppose an increase to the minimum wage.”

It’s time to stop listening to them and their think tanks; their Chambers of Commerce.

And it’s definitely time to stop paying attention to bogus graphs.

Some quotes in this article have been lightly edited for clarity. 

[1] First clue a supply/demand graph is at best a rough approximation of a market: no numbers.

[2] Sounds like a pretty shifty business practice, eh? Well, good news! Non-compete clauses in the fast-food industry are being fought and overturned in the United States right now. And according to a 2016 report in the Globe And Mail (”Will my non-compete hold up in court?” October 6, 2016) Canadian courts are reluctant to enforce such clauses.

[3] “Publication Selection Bias in Minimum‐Wage Research? A Meta‐Regression Analysis,” by Hristos Doucouliagos and T. D. Stanley in BJIR 2014; “The New Minimum Wage Research” by Dale Belman and Paul J. Wolfson in Upjohn Institute Employment Research Newsletter, May 12, 2009 issue.

[4] He’s also city councillor for ward three and for once we talked about something other than roads, bike paths or municipal budgets.

[5] “The Case for Increasing the Minimum Wage” by David Green for the Canadian Centre for Policy Alternatives, 2015