[Dion]

Alberta wage hike will kill jobs

For many of the 383,900 Albertans currently making less than $15 an hour, it will seem like a pretty sweet deal. The problem is that many low-skilled workers, especially young people, will be priced out of the market. Indeed, it is a basic law of economics that, all things being equal, the higher the price of a good or service, the less of it people will buy. Conversely, when prices are set artificially low, more of that good or service will be demanded than the market is willing to provide, leading to shortages.


Some people, whose skills are valued at significantly less than the government-imposed price floor, or who work for employers that can no longer afford their salaries, could end up losing their jobs. But the effects may not be readily apparent if, for example, a business has budgeted the funds to hire two workers at $7 an hour, it will only be able to hire one employee at $15 an hour.


To take another example, if a first-year university student would be paid $10 an hour in a free labour market, he may find that no one is willing to hire him at $15. That is why Canadian studies have found that a 10 per cent increase in the minimum wage leads to a three to six per cent decrease in youth employment.

It is true that some economists have argued that a $15 minimum wage would not have an adverse effect on employment, but many of their arguments are based on spurious logic and have been thoroughly refuted. There also have been studies showing that small increases in wages may have a relatively small effect on employment in some labour markets. Unfortunately, it will be years before we know the true effects of the wage hikes that are being instituted in a number of U.S. cities.


However, a study published last year by the National Bureau of Economic Research looked at the effect of the increase in the federal minimum wage in the United States from $5.15 to $7.25 per hour between 2007 and 2009. It found that the increase “reduced the employment-to-population ratio of working age adults by 0.7 percentage points,” meaning that there were 1.4 million fewer jobs than there otherwise would have been. Another paper published in the Journal of Labor Research in December found that increasing the federal minimum wage in the U.S. from $7.25 to $10.10 an hour, as supported by President Barack Obama, would result in the loss of between 550,000 and 1.5-million jobs.

Indeed, the entire argument for forcing companies to drastically increase salaries is based on the fallacy that greedy corporations are sitting on piles of cash that could be used to lift people out of poverty. In reality, corporate savings aren’t held in Scrooge McDuck’s vault for CEOs to roll around in — they’re invested. If more of that money goes to labour, less of it will be used to build new factories and create new jobs.


It is also the case that many businesses, especially in the food-service industry, are already operating on razor-thin margins. Even large chains are often run by local franchisees who struggle to get by. For businesses operating at the margin, increased wages will likely mean they will have to either hire fewer people, increase prices or close shop. This will drive many mom-and-pop operations out of business, as they will be unable compete with large companies that can afford to absorb the increased costs. And then there’s the problem non-profits, which are definitely not sitting on piles of cash, but will still have to raise salaries.

http://news.nationalpost.com/full-co...will-kill-jobs