4 September 2004

Minimum Wage and the Redistribution of Wealth

Canada is a very interesting place to live. While the weather in certain parts of the country, my city included, may not necessarily appeal to some people, myself included sometimes, I generally find the political atmosphere to be a lot more pleasant and a lot less deadly than American politics, and I believe that’s a definite plus. Of course, a lot of Canadian politics is just as silly as a lot of American politics, but that’s just the nature of the game. Politics is, by definition, a Very Silly Business conducted by Very Silly People for Very Silly Purposes.

There’s been talk in the provincial legislature here an Alberta of raising our minimum wage, which currently sits at $5.90 per hour. Knowing King Ralph, our Much Beloved and Delightfully Inebriated Premier, I estimate that the bar will be raised to an even $6 per hour. Big increase, that, but perfectly in keeping with Ralph’s past track record.

I was talking to a friend of mine about this one day. This particular friend is the minority owner of a local computer store. His brother, who serves as one of the salesmen, was also present for the conversation. When I mentioned that I was in favor of the increase in minimum wage my friends brother scoffed at me and informed me in no uncertain terms that such an increase would only put more money in the pockets of rich people and cause prices to skyrocket. At the time I didn’t know what to say to that, because I simply could not see the logic behind all of what he was saying. So I did what I always do when things like that happen: I came home, wrote a few notes, and then promptly forgot about it until my brain started chewing the matter over again.

I’ve always believed that the minimum wage should be a reflection on the minimum amount of money a full time job should be paying to allow the worker to earn a basic living under current economic conditions. When you take this definition into account along with the fact that rents in the City of Edmonton, traditionally one of the least expensive places to live in Canada, have been skyrocketing of late, along with utility costs, then it becomes fairly obvious that an increase in the minimum wage is long overdue. However, it also becomes fairly obvious that a rather large increase must be applied in order to address this problem. Now, we all know that the provincial Conservatives will never apply a large increase to the minimum wage, but let’s look at the consequences of a large increase anyway.

From the perspective of a employee a large increase in the minimum wage is ideal because all of a sudden it puts more money in your bank account, allowing you to get farther ahead on your bills. This is a good thing. From the perspective of an employer things get a little more hazy. The employer now has to shell out more money in wages to pay their employees, and that drives up their cost of doing business. That means they have to attract more people to their business and encourage them to spend more money, but that isn’t always going to be possible. Some businesses will respond to this state of affairs by increasing the sale price of their products, but this strategy will shoot them in the foot unless the rest of the industry follows suit, because people will just buy from the place with the cheapest price. Big box stores like Wal-Mart, the Temple of the Cheap Bastard, thrive under this kind of environment. They don’t really care how low their retail price goes because they can make up their profit margin on volume. Your smaller neighborhood operator doesn’t have that luxury. A lot of small business will thus close their doors. Jobs will be lost and the province will spiral into recession.

Now let’s look at the consequences of a small increase.

A small increase in the minimum wage is more palatable to a small business owner, but it still adds up to more money being paid out in wages and thus an increased cost of doing business. However, this increase is much smaller compared to the increase associated with a large rise in the minimum wage. The end result is that a lot more small businesses will be able to keep their doors open. There will be some lean months as they tighten purse strings until they can increase their business, but no one will be forced to close their doors, and the odds of an increase in retail pricing because of an increase in the cost of doing business are infinitesimal. A small increase in the minimum wage is thus more palatable to businessmen and the economy, and is therefore more likely to be implemented by the legislature, if they vote in favor of the increase.

As for the issue of more money being funneled into the pockets of rich people, I don’t believe that has any real place in the argument, because that’s a totally separate issue. Rich people are, by nature and by definition, greedy anhedonic bastards who will do whatever it takes to funnel more money into their personal accounts because that’s what they do. It’s part and parcel of who they are. It’s an age old problem that we’re never going to be able to solve, and I’m not all that convinced that it needs solving because these rich people are often the ones who are more likely to open more new businesses and thus create more jobs.

And that brings us to the redistribution of wealth.

From Confederation, Canada has bought into the notion of keeping a level playing field between the provinces. This level playing field is both economic and political. The economic side of this equation translates into transfer payments between the provinces, as a means of redistributing wealth and ensuring that all provinces have the money they need to be able to function. The political side of this translates into transfer payments that are made for less than viable reasons, which is why a lot of transfer payment money goes to Quebec, who don’t really need a lot of the extra money but are under the impression that they deserve it because they’re French, and are therefore better than the rest of us. This is roughly equivalent to me saying that I deserve to have a fat bank account because I’m Scottish and am therefore better than the rest of you.

Recently it was announced that the Province of Alberta has become the first province to be debt free. From this point forward all of the tax revenue and crown corporation revenue collected becomes pure gravy. Now, you know that this little revelation has to have caught the attention of the Federal government, and that the Feds are already plotting ways to shift some of that wealth to poorer regions of Canada. In principle I have no problem with that. As a practical matter I have a big problem with that because the last time such legislation was introduced it was in the form of the National Energy Program, which bankrupted a lot of businesses, cost Albertans their jobs, and drove the province into a recession that we spend more than a decade recovering from.

About the only assurance I have that this isn’t going to happen appears in the form of Stephen Harper, the Western Separatist who leads the Conservative Party of Canada, the Official Opposition. As a separatist he’ll campaign hard to keep that money in Alberta, but how long will it be before some Eastern lobbyists gain access to him and convince him that it would be in his best interests to allow the legislation to go through?

See, that’s the problem with politics. Politicians learn very quickly that they can’t always afford to have a conscience because there’s just too many different kinds of people who want to pull them in too many different directions, and often the decision that benefits Canada the most is the one that’s the most unpalatable. Politics is a lot like soldiering that way, because soldiers are often called upon to do distasteful things in the name of protecting their people.

Personally, I think that if the Feds want our money badly enough they’re going to find a way to take it from us. Staging another National Energy Program would be political suicide, but there are other means at Paul Martin’s disposal. Selective tax laws applied against residents of Alberta is one option. There are others too.

We can’t stop what’s going to happen, but what we can do is hope and pray that the people who are supposed to be looking out for our best interests are actually doing their jobs.

Now, why is it that when I say that my hands start to sweat?