STORY TIME. Gather round kids, ol’ Nelly is going to spin a yarn so complex and sinister that you’ll probably fall asleep and/or start weeping by the end. Does anyone need to pee? You’re going to want to do that.
Nelson was 14 years old and life was grand. He had actual friends. He spent a lot of time golfing, eating, and catching the occassional glimpse of pornography. (Remember, this was before the interwebz were a big deal) And then, one summer, his parents insisted he get a job.
So I did what any kid who didn’t want to keep talking about himself in the third person would do – I said I handed out resumes but didn’t actually do it. For every resume I actually handed out, I said I handed out three. Remember, I didn’t actually want a job.
And as luck would have it, I actually got a job. I started at Dairy Queen on July 18th, 1997, and promptly made it my mission to eat my weight in Blizzards. Getting 50% off food while working was instrumental in paving the way towards this goal. Oh, and I’d like to thank gluttony too.
I started at $4.50/hour, which almost seems like a slave’s wage compared to what the kids make these days. I remember working five days a week for two weeks and getting a paycheque for less than $300, something that would appall me now, but was perfectly acceptable at the time.
After a bit of a rocky start, I settled into the job and started enjoying my time there. A year later I was promoted to a supervisor, and got a shiny new wage to go with my position, $5.50/hour. I was saving money at a pretty good clip, setting it aside for a car purchase that never actually happened because I realized I’d be spending almost my entire wage on my car.
Suddenly, the Alberta government announced that they would be increasing the province’s minimum wage from $4.50 to $5.50 per hour. I was immediately pissed. I had worked hard to get this promotion and to make $1 per hour more than everyone else, and suddenly some newbie employee was going to make the exact same wage as me? I probably consoled myself with a Blizzard.
After an informal meeting with the boss it was decided that I wouldn’t be making minimum wage after the increase went into effect, I’d be making $5.75/hour. That’s right, a whole 25 cents per hour more than somebody who didn’t know an ice cream cone from their ass. It wasn’t great, but by that point I was pretty comfortable with the job, and didn’t really want to go through trying to get another one.
And, as it turned out, I settled into being the cook, which was a pretty good gig. I didn’t have to supervise anybody anymore, and I got to keep my raise, as piddily as it was. And no, I didn’t spit in anyone’s hamburger. Believe me, I was tempted.
What’s the point of this story? It shows the economics of the minimum wage and how raising it isn’t the great idea that everyone thinks.
Raising the minimum wage simply forces an employer to pay their new staff the same as their more experienced staff. It takes the normal wage hierarchy and compresses it, pissing off the people who used to get 10 or 20% more than a new employee. And it increases the entire company’s wage structure accordingly, since an employer is forced to give everyone raises, not just new staff. Things worked out pretty well for the staff at Dairy Queen who were hired at $4.50/hour a couple of months before the minimum wage increase.
Suddenly, fixed costs have gone up significantly, and businesses aren’t selling enough extra sandwiches to compensate. So what happens? Two things mostly, and that’s price increases and staff hours cut. Both of these things happened at Dairy Queen back in 1998. It worked out well for me, since I got all the hours I wanted. Who would you give the hours to – the guy you just hired making $5.50/hour or the guy with a year’s experience making $5.75/hour? Exactly.
Raising the minimum wage is a good deal for the small percentage of the population that actually makes minimum wage. But, chances are if you’ve been working at a fast food joint for a year or two, you’re making a dollar or two more per hour than someone new. You know your stuff, and can actually make a Blizzard with the topping mixed evenly throughout. These are the people that get screwed when the minimum wage goes up.
Don’t think it’s just a temporary bump in the road either. Business plans are built on wage costs going up at the rate of inflation, something like 2-3% a year. Suddenly, the minimum wage goes up and an owner’s wage cost shoots up 10% across the board. Do you really think this owner is going to shrug and just factor it in as a cost of doing business? Hell no. He’s going to be stingy on the raises for years afterwards. Sure, he cares about his staff. He just cares about his profit margins more.
As wages continued to go up in Alberta – thanks to the oil sector driving up wages across the board in the mid-2000s – businesses that paid minimum wage resorted to a different strategy to get workers. They brought in immigrants by the thousands, paid them minimum wage, and solved their problem. Many of these immigrants arrived early enough that they were able to stay in Alberta permanently, much to the delight of everyone. The employee gets to live in prosperous (albeit cold) Canada and the employer gets to retain a trained employee. It was all blowjobs and rainbows, until it wasn’t.
Alberta’s economy is still solid, but nowhere nearly as strong as 6 or 7 years ago. Which means that many of the people who were working higher paying jobs are finding themselves unemployed, and for longer periods of time. They’d be willing to take fast food jobs again, except those jobs are already filled by these now established immigrants. What’s a province to do? It’s not exactly a problem caused by minimum wage, but it does highlight a bigger issue.
And that issue is wage elasticity. One of the problems with setting minimum wages is what happens when the pendulum swings towards the owner’s side and they’ve got the upper hand. Maybe they’d expand if they could hire someone for $8/hour, but can’t since the minimum wage is higher. This can stifle economic growth during times of overall weakness.
And that’s why, at least in this writer’s not so humble opinion, the minimum wage could go away and it wouldn’t matter that much. We live in an age where it’s ridiculously easy for anyone to figure out how much others in a similar profession make. All it takes is a laptop and working fingers. Just like when I argued on the uselessness of unions, the same points apply. Skilled labor will still be able to charge what the market demands. Unskilled labor will too, and unscrupulous owners will quickly find themselves in a position where nobody will want to work for them. Hell, it’s something you already see. Just check the job listings, where you’ll see certain companies showing up over and over again.
Today’s economy is too advanced for minimum wages to be a necessity. The world won’t fall apart if we eliminated them completely. That will never happen, so I’m willing to compromise and settle for never talking about it again.