Comment 28372

By A Smith (anonymous) | Posted January 30, 2009 at 11:00:03

Ryan, if raising the minimum wage helps the economy grow and doesn't affect unemployment, then why is the U.S. and Canada, who have recently upped the minimum wage, are now shedding jobs? How do you explain that? If minimum wages are a net benefit to the economy and workers in general, why have things gotten worse and not better? How do you explain that correlation, because it argues against the studies that you cite.

Furthermore, the studies that you mention, tend to look at very short time frames and all of them cherry pick the best years as evidence that minimum wage laws don't drastically reduce employment. In one of the studies, it shows how high minimum wages states outperform in job creation compared to lower wage states. Except of course, if you look at the decade before, the complete opposite is true. Therefore, if you want to be fair, you need to look at longer time frame, that compares both expansions and contractions, not simply the boom years.

As for diminishing returns to the minimum wage, who decides where that level is? How do politicians know exactly where to draw the line? Just as they could choose a rate too low, they could just as easily choose a rate too high? What is the measure you use to know where to stop?

What about people that earn above the minimum wage? If employers are able to set wages where they choose and are not affected by the laws of supply and demand, then why does anybody earn more than the minimum wage? Why do companies pay engineers more than $9.00 an hour. If employers truly call the shots, then they shouldn't and yet they do. The reason for this is simple, if a company refuses to pay the market rate for labour, it will find itself at a competitive disadvantage relative to its competitors who do.

Think about it this way, if you pay an engineer $9.00, but their work produces $22.00 in profits, you are are exploiting that worker for $13. However, if I am willing to accept a $5 exploitation rate, it will allow me to lower my prices to consumers and pick up market share at your expense. Furthermore, if businesses really control the prices they can both charge consumers and also pay for labour, why is it that companies such as Walmart only have 3% profit margins. Explain that.

Furthermore, higher wages do not motivate people to work harder, if those wages are not tied to performance. Why would anyone work harder if they got paid high wages regardless of how hard they worked. If anything, setting a floor on wages will make people work less diligently, simply because they have the government to back them up.

>> "When already-wealthy people make more money, they tend to invest it, but when poor people make more money, they tend to spend it. As a result, a policy that increases income to the poor has a bigger impact on GDP than a policy that increases income to the rich." >>

First of all, without investment in new technologies, you can't increase productivity. Consumption is important, but no more important than investing in the future. They are two sides of the same coin. However, if you are concerned with increasing the purchasing power of low income people, why not raise the personal exemption to $20-30K and abolish the GST and PST on incomes less than the median. This way, low income people would have more incentive to work and the businesses would enjoy more sales because of their greater disposable income and lower transaction costs when making purchases.

Just as a side note, even after the government has cut the GST from 7% to 5%, this tax still brings in almost the same amount of revenue to the government as it did before. In 1999, it brought in 12.34% of all government revenue. At the end of fiscal 2008 (Mar 31, 2008), it comprised 12.21%. This is all the more amazing considering the fact that oil revenues are much higher today than in 1999. What this means is that the government is now taking a smaller piece of a bigger pie. There are more transactions because of lowering the GST, otherwise it should only bring in 5/7 of what it did before, which would have been 8.81 % of overall tax revenue.

Therefore, if you want to help poor people, let them earn and spend tax free up to a reasonable level (30- 35k or the median income), but don't force employers to pay the cost. If the GST tax reduction is any lesson, it's that the government can raise just as much money by using low tax rates, simply because it increases the amount of activity in the economy. Let's abolish the GST and the PST as soon as possible.

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