The idea behind the minimum wage increase is that it will improve the economic well-being of low-paid workers and combat poverty. The argument is that it is only a small share of workers who receive the minimum wage and is largely made up of teenagers from affluent families. The teenage percentile is actually quite low with women, people with limited education and immigrants making up the 5.8% of minimum wage workers.
The thinking behind the increase is that it will help the economy to blossom as low-paid workers find themselves with disposable income. The hope for employers is that better paid workers will have more incentive towards loyalty, thus reducing turnover. The fear is that it will cause a ripple effect meaning higher wages across the board.
The reaction by most companies is to cut jobs or raise prices.
Walmart announced it was raising entry-level wages from $10 to $11 an hour and at the same time announced the closures of one tenth of its stores resulting in massive layoffs. The layoffs went unaddressed but the wage increase attracted praise from the White House.
Restaurants have retaliated to the 20% minimum wage increase by raising the prices on food by 2.3%. Some franchise owners, such as Tim Horton’s, have stopped paid breaks and no longer fully fund employee benefits packages. It is interesting that while Tim Horton’s has increased its prices several times due to coffee bean prices, rising operations costs, and a multibillion dollar merger with Burger King, it’s customers continue to show up every day and the chain continues to produce high profits regardless.
Many companies are turning full-time jobs into part-time so that they don’t have to pay benefits
Others are cutting jobs or spreading the more work amongst fewer employees. And then there is the threat of job obscurity whereby cashiers are replaced by self-checkout systems, delivery people by drones and clerical help by software.
While the arguments for and against both have a certain amount of truth and sense to them the belief is that, ultimately, businesses will do what they do best and adapt to the new market forces.