One of the key promises of the Ontario NDP during this election is for an immediate raise in the minimum wage to $10 per hour and following increases matching inflation. According to the Liberal platform, they will raise it to $10.25 by 2010. The Greens will bring it to $10.25 by June 2008. The Tories only say they will set a “realistic” minimum wage.

Currently the minimum wage is set at $8 per hour. Compare this to the US (with the roughly on par dollar it makes it easy) where the highest wage is $7.93 in Washington and the average appears to be $6.18. Now the NDP claims 237,000 Ontarians work at minimum wage currently and 1.2 million work for less than $10 per hour. The Ontario government estimates the workforce to be 7, 049,900 people (out of a 12,753,702 estimate total population). That would mean that about 17% of people would get an immediate raise.

My Opinion: There should not be an increase in minimum wage but if there is going to be it should be gradual and only increase with inflation.

For many people this seems like a no brainer; give people more money to support themselves. Everyone would like to be paid more for doing the same work, but what it comes down to is the actual value of that work. Is pumping gas or manning the fast food counter worth $10 per hour? It should be up to a competitive market where the natural wages are determined  due to competition in wages by their competitors and by rivaling employees who are seeking the job. Instead, minimum wages force a fixed value that is rarely negotiated and is just accepted by employees. This results in some jobs being undervalued and some being overvalued because the labour market isn’t free to find the natural wage.

Milton Friedman has said that “minimum wage laws are about as clear a case as one can find of a measure the effects of which are precisely the opposite of those intended”. This is because minimum wage laws increase unemployment. While not proof, it is likely not a coincidence that Canada’s 30% higher unemployment rate compared to the US is due to the comparatively equal percentage higher minimum wage. (It is not the only reason though). Rand, in her Capitalism states,”unemployment is the inevitable result of forcing wage rates above their free-market value”. What is better for workers: more jobs at lower wages or less jobs at higher wages? I believe the more job scenario is.

For example, if a business is forced to pay more wages it is going to have to cut the costs to remain competitive. This means if there are 5 people making $8 now for a total of $40 and they have to pay $10 now they aren’t going to employ 5 people, but will employ 4 people for $40. Sure the 4 people are making more money, but they have to work harder and in our social system, they will be supporting the now unemployed 5th employee. In the cases it doesn’t result in unemployment, it will result in inflation to the prices, which will reduce the buying power of people of everyone. For the small number of people it would benefit (less than 17% due to rising unemployment), it is outweighed by the rest of the population it negatively impacts. While good intentioned, minimum wage increases, especially fast ones, are harmful.

So in conclusion, I think of the major parties that the Liberals have the best plan; a gradual rise. If the Conservatives weren’t so ambiguous with a “reasonable” wage they may come out on top. They are followed by the NDP and with the Greens in last for their highest/fast rising plan. What do you think?