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BLAKE DOYLE: Which comes first, a stronger economy or a better wage?

A protester takes a slug of coffee as he and dozens of others rally outside of the Tim Hortons on Spring Garden road in January, calling for a $15 minimum wage.
A protester takes a slug of coffee as he and dozens of others rally outside of the Tim Hortons on Spring Garden road in Halifax, calling for a $15 minimum wage. - SaltWire file photo

Competing forces of wage pressure for a livable existence versus inputs suppression for business management is a long running point of friction.

Increasing wages does contribute to inflation, but does it not also increase purchasing power in the economy? Are higher wages necessary due to the hot economy, or has the economy continued to grow due to higher pay?

Blake Doyle.
Blake Doyle.

Business operations and worker remuneration is a difficult dance. In 1961, the first minimum wage in P.E.I. was set at $0.375 for a 48-hour work week.

By 1977, the minimum wage moved to $2.70, and by 1991 the wage rate had risen to $4.75 per hour. In 2000, we started witnessing annual minimum wage increases and in 2009 bi-annual increases came into effect raising the rate to $10 by April 2012. As of April 1, 2020, the minimum wage will be $12.85 per hour.

In the U.S., the federal minimum wage has not kept pace with Canada. A much larger economy benefiting from a far more progressive taxation rate and acclimatization to offering gratuity (tips) the federal minimum wage is $7.25 per hour ($9.55 Cdn), although each state can regulate their minimum rates, 29 states enforce greater than the federal minimum. The average living wage to cover basic needs in the U.S. is estimated at $16.14 blended across all states.

Two U.S. Democratic presidential front runners are calling for a $15 federal minimum wage ($19.77 Cdn). In 2014 amid surging housing prices Seattle experimented with the minimum wage, which was gradually increased to $15 by 2021. As a case study – this policy had some startling and unexpected impacts.

As wages rose, employees elected to work less. A challenging response in a tight labour market. To accommodate the increased input costs, businesses had to raise prices. The increase in wages caused a competitive strain to uniformly compete for talent. From an economic perspective, workers had more discretionary income and more flexibility to deploy in the local economy. Psychologically, people felt empowered and more valued in the workforce.

A social economist would likely argue that the psychological benefits of increasing wages is essential to well-being, but it should be paired with a balance in labour supply. Today P.E.I., for the moment, is in a strained labour position. But there is no consensus on wage rate management or the economic impact and conflicting studies remain. Even Federal Reserve chairman Jerome Powell touched on the issue during his testimony before the House of Representatives this summer saying “there is no consensus among economists … economists are all over the place on this.” The U.S. job market, not unlike P.E.I., remains unprecedently strong.

When policy makers look at livable wages, business impacts, empowerment levers and progressing the economy and society; there are many tools at their disposal. There are economic tools outside wages and there is a underlying change in societal expectations. Large corporations such as Microsoft has experimented with productivity gains of four-day work weeks. Newly elected Finnish Prime Minister Sanna Marin is pushing for six-hour days, four days per week.

As populations grow, and efficiencies increase, society will need to look at different approaches to engaging the labour pool. Alibaba’s Jack Ma has forecasted that in the next 30 years people will work four hours per day and four days per week.

Where will our policy managers take us, and do they have the foresight to balance business and societal demands? Are mechanisms quietly being put in place to ease any anticipated shocks? One would hope, but I am far from certain.

Blake Doyle is The Guardian's small business columnist. He can be reached at blake@islandrecruiting.com.


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