Friday, February 2, 2007

Leaning toward a higher minimum wage (Video: click on David Card)

So this whole $10 minimum wage issue in Ontario is pretty hard to decipher, primarily because business interests have been vary able in highlighting the potential dangers in raising the minimum wage. One of my econ profs showed this video where David Card did a difference study comparing New Jersey where the minimum wage was raised vs. Pennsylvania where there was no raise in minimum wage. This comparison is needed so that the other market factors that could effect the change in minimum wage are negated. Regardless, what he found is that raising minimum wage did not cause job loss. That is one of the frequent arguments given, the other is about inflation through higher wages and then higher prices. First, the people receiving minimum wage are a small percentage of the population, so a slight increase in the wages of a small part of the population won't have that dramatic of an effect on the prices in the market. Furthermore, even with a minimum wage hike, these low income earners would still be spending most of their income on subsistence items, so that's even less of an effect on market goods. Furthermore, it can be shown that it's monetary policy, not wage increases that cause inflation, so a lot of this is just fear mongering. What David Card showed in the video, though, is that in NJ where the hike had no effect, there had been no wage increase for a really long time, so this differs with the Ontario case where there have been 4 recent wage hikes after 9 years of no action. This probably means that the $10 wage hike should probably be done over a longer period, rather than just abruptly. I'm not sure how long, but it would depend on Ontario's capacity to absorb this change. I don't know the exact figures for Ontario, but in the Canada wide case, real wages have decreased since 2002 while productivity has risen over that period, so if the Canada-wide case is representative of Ontario's, then Ontario could probably accomodate a $10 wage, but I don't have the exact numbers, so who knows.

No comments: