I generally believe in libertarian principles, and would argue that, in an ideal world, we shouldn’t need a minimum wage. Unfortunately, we don’t live in that world. Regardless of whether you think a purely capitalist system would be free of the problems we have today–something which I don’t personally believe–we are not living in such a system. A conversation I had with a relative on Christmas Eve illustrates this perfectly. My relative is in the grocery business. Here’s roughly what he had to say:
Due to the high cost of living in the city of Vancouver, full time grocery workers who earn minimum wage to start ($10.85 per hour) are well under the poverty line ($13.47 per hour) for a single person in metro Vancouver. This means many workers are forced to take another job when they are already working forty hours a week. Because the work is hard and the low wages unattractive, many of the workers are immigrants, including recent immigrants from Syria who are seldom able to speak English well. This means customer service suffers.
The company, a large Canadian chain, is focused on keeping costs low so that it can compete against Walmart and the other large chains. Consumers, always trying to stretch their own wages as far as they can, naturally shop where they find the lowest prices. The government is trying to balance people’s needs with the needs of business owners to compete. So who’s at fault, and what should be done?
Are corporations at fault for paying workers at the minimum wage? I would argue they aren’t, but they are playing a dangerous game. In the past, the grocery business was unionized, and worker were paid very well, but the corporations (notably Walmart) were able to break the unions. I’m not a fan of large unions, but in this case, they were enabling their workers to balance the larger power of the big corporations. If a company is paying its workers less than they need to survive, maybe it deserves to have to deal with a union.
Are consumers at fault for going to the cheapest provider? People have a right to free choice. That doesn’t mean we should allow our local businesses to be destroyed by unfair competition from mega corporations. There is a place for regulation, and that place is in protecting people from corporations. I’m for minimizing regulation, but against eliminating it altogether.
One of the roots of this problem is corporate personhood, the act of granting corporations rights (distinct from the rights of their owners) under the law. The union movement can be seen as a response to this, with unions being formed to combat the power concentrated in large corporations. Government regulation of minimum wages has existed since the early 1900s, and can be seen as another reaction to corporate power.
What can be done? Should government step in and increase the minimum wage? What negative impacts could that have?
I think one obvious thing to do is to regionalize the minimum wage. Assuming we are going to have the government impose a minimum wage on corporations, it should be fare. If the minimum wage was raised to $13.50, workers in metropolitan Vancouver would be making a minimum living wage, but in rural areas, they would be better off. Why don’t we have different minimum wages set based on the differences in costs of living in different regions?
What’s wrong with having rural workers make more than a minimum living wage, you ask? Every intervention by government leads to reaction by the market. In the case of low income jobs, increases in the minimum wage lead to increased pressure on companies to automate or otherwise eliminate jobs. Small business may be forced to close entirely. Take a look at this article in Forbes: We Are Seeing The Effects Of Seattle’s $15 An Hour Minimum Wage. The following quote from it warns of the danger:
As the implementation date for Seattle’s strict $15 per hour minimum wage law approaches, the city is experiencing a rising trend in restaurant closures… The closings have occurred across the city, from Grub in the upscale Queen Anne Hill neighborhood, to Little Uncle in gritty Pioneer Square, to the Boat Street Cafe on Western Avenue near the waterfront.
The shut-downs have idled dozens of low-wage workers, the very people advocates say the wage law is supposed to help. Instead of delivering the promised “living wage” of $15 an hour, economic realities created by the new law have dropped the hourly wage for these workers to zero.