Min Wage - Part 2 - Business Essay Example

The minimum wage in Canadian economic debate has been a long and widely held debate between social interest groups and the ruling government for years - Min Wage introduction. The minimum wage is the standard by which workers, skilled or not, are to be paid for labor exchange. Many people argue that the minimum wage is a standard that is well below the economically viable abilities of most Canadians living in this country. In recent news New Democrat MPP Cheri DiNovo introduced a private members bill to have the minimum wage in Ontario raised from $7.75 to $10.00 per hour in an effort to raise the average fulltime worker to the poverty line. By current standards a person with one dependant working full time at this wage does not meet the Provincial and National guidelines for someone living above the poverty line. Ms. DiNovo’s bill has now passed second reading and will now go to a standing committee for further study. Many in the province, mainly human and social interest groups as well as the public support such a move but are being met with opposition by the Liberal and Conservative party members as well as large and small business interests.

The following pages will take a closer look at this proposed initiative and will examine the issue from both sides. The argument for such an analysis has roots in both economic and social sciences. Often times when economics are debated and examined in the public forum the human element is removed and at times not even considered. As a province and a country these interests need to address not only those living below the poverty line but the economic pressures that an increase would have as well as the current stress this below poverty line standard already has on the social assistance system in the province.

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Why would anyone argue against an increase? Most of the opposition against this bill claim that a two dollar an hour increase in the province would be too much of an economic strain on business to try an absorb. This stress would in turn produce job loss and in fact would increase the instances of poverty in the Province. “Raising the minimum wage to $10 would hurt more poor people than it would help because employers would have to cut staff” This is a direct quote from Ontario Finance Minister Greg Sorbara reported in the Toronto Star by staff reporter Greg Ferguson on October 18th, 2006. [1]

One of the main points that the ruling Liberal government counters much of the demand for an increased is their proposed raise of the minimum wage to $8.00 an hour by February 1st, 2007. This would see the full time worker receiving an increase of $20.00 a month. Hardly a substantial amount of money to provide any relief from the already difficult economic stress these people are having.

Any true economist attempts to separate opinion from an analysis in order to produce the truest data. That is acceptable when examining certain markets and factors such as interest rates, inflation and foreign exchange markets. When domestic issues arise that are so deeply imbedded in the social structure and effect all Canadians on some level opinion needs to be the driving force for a strong analysis and argument for one side. The minimum wage should be increased and the government should take the proactive and necessary steps to deal with the fallout from job loss if such an increase predicts. Often times the marriage between government and corporation effects the best social policy and the public suffers as a result. The legislative assembly is compromised of elected officials that state they have the best interest of their constituents at heart and campaign based on those platforms. However the arguments made by the opposition of this proposed increase appears to have business interests at heart and cloud the issue by making arguments that job loss would create more economic strain as a result of an increase. This same government cannot really provide and real evidence to support this argument. Corporations that employ the minimum wage standards as part of their compensation package use this as a profit making tool and those business that could not afford such an increase should be the ones appealing for relief, not the tax payers. There is some evidence to suggest that small business could in fact experience the greatest effect but there are methods and tools that the government could apply to counter act such an impact such as wage subsidies and tax relief.

The issue at hand is a National examination of the minimum wage in Canada and the ceiling of poverty. MPP DiNovo has brought the issue to light in Ontario and in some respects have triggered the debate in other parts of the country. As the minimum wage standard is determined by province there is no one overseeing method or theory to address the issue. Cost of living are regional issues in many places as larger urban areas have a much higher economic standard than rural and smaller populated areas. Inflation is by some means one of the strongest tool to use in examining the need for wage increase across the board and is not just respective to the minimum wage.

 

Province
Minimum Wage
British Columbia
$8.00
Alberta
$7.00
Saskatewan
$7.55
Manitoba
$7.60
Ontario
$7.75
Quebec
$7.75
New Brunswick
$6.70
PEI
$7.15
Nova Scotia
$7.15
Newfoundland
$7.65
Nunavut
$8.50
North West Territories
$8.25
Yukon
$8.25

This chart demonstrates the current rates of Minimum wage by province as of November 2006 in Canada. [2] The National average based on these rate would be $7.63 per hour. A person working 40 hours a week  would then in turn  make $1220.80 per month BEFORE income tax and provincial deduction. The average that home pay would be roughly $940.00 per month.

Unlike the United States Canada has not preset standard for determining the poverty line. Instead most economists apply Statistics Canada’s Low-Income Cut-Offs (LICOs) as the measure for which determining individuals and families Living with in and under the poverty standards in Canada. There is more attention to region and population under these guidelines.  By this average standard any one individual living with in a major urban centre and making less than $18,000.00 a year would be under the standard for poverty as determined by stats Canada.

There is many political and economic theories as to why Canada models the United states in some respects as to the institution and control of the minimum wage. The price ceiling for minimum wage increase to effect the over labor market is purely myth according to David Card who in his book feels that a good percentage of minimum wage employers are large corporations such as McDonalds that make large annual profits.[4] Of course this is only one example and there are many other employers guilty of employing the minimum wage when they could clearly compensate their employees more as part of the labor exchange. One very interesting figure that Stats Canada released in 2005 after completing a study on the minimum wage in Canada was the over representation of women working for this standard. “Women accounted for almost two-thirds of minimum

wage workers, but less than half of all employees. This translated into a higher proportion of women working for minimum wage—1 in 17 compared with 1 in 30 men. This overrepresentation held across all age groups, with rates for women being mostly double those for men.” [5]

This number could be related to the types of employment offered for non skilled workers which would be mostly in the fast food and service industries. This number demonstrates that the minimum wage is in many ways a social issue outside of the realm of economics. If the percentage of women earning the minimum wage is double that of men then there arises questions on social policy out side of the standards of living.

This price floor that Canada has adopted as a means of controlling the labor market and insuring that workers are paid what the government feels is a fair wage is the most visible in the country. As a practice the minimum wage currently is considered to be below the national standard for poverty. The government in a bid to appease business has applied this price floor at a standard that supports the business community and not the worker. Many advocates of minimum wages do not argue in terms of the model of supply and demand (though some do). Rather, they use a power model that sees the issue as a conflict between employer and employee. If employers have power, then they may pay less than the value that is or can be contributed by the worker. In a sense, the employer “exploits” the worker. In this model, the minimum wage helps workers at the expense of employers’ profits. In contrast, the model of supply and demand suggests that the minimum wage helps some workers at the expense of others. Obviously it is more difficult to argue in favor of a minimum wage using the model of supply and demand.[6]

Another issue that exists currently in the economics of Canada is the growing momentum of inflation and the buying power of the minimum wage. There is not a true competence of the standard to reflect the rate at which demand has risen. This is a responsibility that the government has not incorporated into its standards when determining what the minimum wage should be. There is no real reasoning behind the reason why government will not make higher increase. As stated earlier in this paper there is the theory that increasing the wage would create unemployment as there would be mass layoffs as a result of business not being able to meet the standard. Many economist scoff at this theory and look at it for what it is, the relationship between  politics and business.

The applied price floor does more harm than good for the people it is supposed to help. A good example of how price floors can harm the very people who are supposed to be helped by undermining economic cooperation is the minimum wage. Legislating a minimum wage is commonly seen as an effective way of giving raises to low-wage workers. Unfortunately, it, like any price floor, creates a surplus. In this case, it is a surplus of workers, more of whom are willing to work in minimum-wage jobs than there are employers (demanders) willing to hire at that wage. We call a surplus caused by the minimum wage “unemployment.” [7]

The one obvious advantage to the minimum wage is to assure that these workers are at the bare minimum making a wage that they can exist on in Canadian society. There is many downfalls and criticisms for this standard but the theory behind the minimum wage is protection. There is certainly a moral and morale issue at hand to. These employers are meeting what the government states they must legally pay their workers for the supply of labor. If this is the decision of the employer based on profit and not the good of their worker then what relationship to they have with their employees. More importantly what would they be willing to compensate their employees if there was no minimum wage.  This in turn must have the effect of division between employee and employer as the worker must have reservations about this wage and aware of this issue.

Regardless, as the economy progresses and the continuation of inflation effects the price of a dollar in the pocket of the worker there will be issues surrounding the bare minimum that business will have to compensate their workers for the exchange of labor. Government will need to reevaluate its priorities regarding its responsibility to its public and that is not a likely reality in this economic climate.

 

 

[1]Ferguson , Greg. The Toronto Star.  2006

http://www.thestar.com/NASApp/cs/ContentServer?pagename=thestar/Layout/Article_Type1&c=Article&cid=1161121813521&call_pageid=970599119419
[2] Service Canada : Human Resources Development Canada.

www.gov.ca
[3] National Anti Poverty Organization of Canada

http://www.napo-onap.ca/
[4] Card, David. Krueger, Alan. Myth and Measurement: The New economics of the minimum wage.

Princeton University Press. New York 1997
[5] Perspectives on Labor and Income” Fact Sheet on Minimum Wage. Statistic Canada. September 2005

http://www.statcan.ca/english/studies/75-001/comm/2005_09.pdf
[6]Roberts, Clifton, Ferguson: Recent Social Trends in Canada, 1960-2000.

McGill-Queen’s University Press (August 2005)
[7] Foundation for Economic Education

http://www.fee.org/publications

 

Works Cited

 

 

 

Labor Demand By Daniel S. Hamermesh

 

From Poverty Wages to a Living Wage By Chris Schenk

 

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