Why the minimum wage 'Fight for $15' may be the wrong battle

When New York announced that it would gradually raise its minimum wage to $15 an hour for fast-food workers, it was hailed by labour activists as a victory for thousands of low-income employees.

The proposed hike can also be seen as part of a movement that has been gaining steam in recent years.

In the U.S., groups like the Service Employees International Union have been waging a "Fight for $15" campaign since 2012. President Barack Obama has also pushed for the federal minimum wage to increase from $7.25 an hour to $10.10

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Meanwhile, here in Canada, federal NDP Leader Tom Mulcair has made a $15 federal minimum wage (by 2019) a central part of his election platform, while organizations like the B.C. Federation of Labour have been fighting to boost that province's minimum wage, also to $15 per hour. And Alberta's new NDP premier, Rachel Notley, has pledged to bring in a $15 minimum wage for her province by 2018.

But economists differ on whether raising the minimum wage is the right tool to help out lower-income families.

"It's a pretty good way of raising the income of that bottom tier of the labour market," says Wayne Lewchuk, a McMaster University economics professor who specializes in labour markets. "It's not just people who are making minimum wage that would go up to $15. It'll help that bottom tier of the labour market."

But a distinction needs to be made between low-wage workers and low-income families, says David Neumark, an economics professor and director of the Centre for Economics Public Policy at the University of California, Irvine.

Writing in the Wall Street Journal last year, Neumark argues that the data, at least according to the U.S. Census Bureau, reveals that many low-wage workers are in higher-income families, are not the primary breadwinners and often contribute just a small share of their families income.

As a result, "minimum wages are ineffective at helping poor families because such a small share of the benefits flow to them," he wrote.

'All kinds of qualitative improvements'

Still, McMaster's Lewchuk argues that a minimum wage increase can have a significant effect on the standard of living of those families barely getting by as many will often cut back on food or prescription medicine to make ends meet. Children suffer as well, as parents are unable to afford extra-curricular activities for their kids.

"I think there are all kinds of qualitative improvements that happen to people when they move up even just a little bit," he says.

An increase will also stimulate the economy, he suggests, as those who get that raise will likely spend the extra earnings, often on the products being made by other minimum-wage workers.

"Low wages is a lazy way of making a profit. By having the wage go up, [companies] either go bust or they get in the game and get better and I think that's a good thing for society," Lewchuck said.

Part of this debate, of course, centres on whether a spike in the minimum wage would lead to job losses, as business owners seek to recoup the profits lost from the increased wage costs by cutting back on employees.

Some studies have shown the effects of a minimum wage hike on employment are negligible. However, Steve Hanke, an economics professor at Johns Hopkins University in Baltimore, said it's common sense that if the minimum wage is raised, and particularly if it is raised above the level that is consistent with productivity for those goods or services, people are going to be unemployable.

"If your productivity is $20 an hour and the minimum wage is $25 an hour, it's just a simple game. You can't afford to keep people unless the owner of the business decides they will subsidize them in some way," he says.

"It is unambiguous. If you mandate a wage that is higher than someone's productivity, they are going to lose their job."

At the same time, there are some economists, like Guy Standing, a professor of economic development studies at the University of London, who don't oppose a minimum wage hike, but question whether it will do much good.

 "I don't think too much can be expected of going down that road," said Standing, author of The Precariat: The New Dangerous Class.

"I'm not opposed, I'm highly skeptical they have a big effect. They would have had a much bigger effect 50 years ago when most people were in full-time, relatively stable manufacturing and public sector jobs. But that isn't today and certainly isn't going to be tomorrow."

A significant number of people are now part of the so-called precariat work force —  part-time casual workers without much in the way of job security. Many in this category work unpaid extra hours anyway, making it difficult to calculate an hourly rate that is appropriate.

Guaranteed minimum income an alternative

"More and more people are in and out of short-term jobs and don't get an income from the sort of things they are having to do  that would provide them with a decent standard of living," says Standing.

Instead, he supports the idea of a basic income, or a guaranteed annual income for all.

Not only would it provide basic security, he said, but it would  strengthen low-wage earners in the labour market and enable more people to turn down jobs not offering satisfactory wages. 

Hanke said that even free-market proponents have supported, and in fact proposed, those types of guaranteed minimum income measures as alternatives to minimum wage increases.

"There are ways to transfer that income, and do it directly," he says. "But the minimum wage and all of these rigged prices and subsidized prices ... end up just making  a terrible mess out of the market."