Brian Lee CrowleyThe Ontario government’s decision to raise the minimum wage forces us to choose between compassion for the vulnerable and the economic sense of free markets. There is a better way forward, writes Brian Lee Crowley.

By Brian Lee Crowley, June 2, 2017

My very first job (other than delivering newspapers) was as a busboy at the Spaghetti Factory in Vancouver’s Gastown. The hourly minimum wage (MW) then was $1.50.

Had someone asked me then if the government should force the Spaghetti Factory to pay me more, I would have been all for it. After all, who among us believes that we get paid enough for what we do?

But what I learned later in life is that the price of things (including the price of an hour of my labour, which is what wages are) is not set by the seller, which is why we almost universally feel underpaid and undervalued. Nor is it set by the buyer who almost always thinks he or she has to pay too much to get what they want.

Prices are set by millions of transactions in which buyers and sellers discover at what price supply and demand balance each other. If the price of cars or concerts or tomatoes is too high, there will be unsold stock on the shelves. If the price is too low, sellers will find they can’t keep up with demand and their shelves will be empty. If wages are too high, there will be unemployment; too low and there will be labour shortages. The right price is the one that results in neither surpluses nor shortages.

Prices are set by millions of transactions in which buyers and sellers discover at what price supply and demand balance each other.

It is a system that works pretty well. Until, of course, governments come along and think that they can set a better price than knowledgeable buyers and sellers.

These are the folks that think that dairy and poultry are too cheap and created supply management that costs the average family about $400 annually in higher food prices. They overpay for “green electricity” and then have to dump the resulting power surplus in neighbouring American jurisdictions at fire sale prices. They create a lettermail monopoly and then try to charge such a ruinous price for stamps that volumes crash, communication moves to the Internet and the postal monopoly is on death watch. All because they think they know the “right” price for things.

This brings us back to the MW, which the Ontario government is proposing to increase by 30 percent-- according to the premier, the largest increase in Ontario’s history, radically above the annual inflation adjustment  their own 2014 expert panel recommended. This will have the same predictable consequences as other government price-fixing schemes.

By definition the MW is a rule that no one shall be employed at less than this wage. But employers only hire workers who produce more than they cost. The MW is therefore a rule that no one shall be employed whose hourly productivity is less than the MW.

A high MW is a law that such people—who are among our most vulnerable-- shall be perpetually unemployed. The jobs they used to do as retail clerks, counter servers, parking lot attendants and others are disappearing as technology can easily replace them at this level of MW.

The government wants you to believe you can have compassion or economic common sense, but not both. They’re wrong.

But the MW is an anti-poverty strategy cry its defenders. No.  Ontario’s own study found that the vast bulk of MW earners are not primary family breadwinners but rather supplement other family income with their earnings. Fully three fifths of all Ontario MW earners are teenagers or in their early 20s.  Raising the MW pleases these people but does little to alleviate poverty while creating needless unemployment.

There is, however, a perfectly sensible programme called the Working Income Tax Benefit that tops up the wages of people whose low income genuinely justifies it, but leaves it to the market to find the wage level that matches available workers with demand for labour. This balances genuine compassion with economic common sense and should be expanded.

The government wants you to believe you can have compassion or economic common sense, but not both. They’re wrong.

Brian Lee Crowley (twitter.com/brianleecrowley) is the Managing Director of the Macdonald-Laurier Institute, an independent non-partisan public policy think tank in Ottawa: www.macdonaldlaurier.ca.