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They could have raised the minimum wage without all the pain

Current Events, Friends-Romans-Countrymen, Politics and Activism No Comment

Raising the minimum wage 20% in one shot was not a bright move and it’s going to cause a lot of short term pain before it produces any gain.  There is already evidence that the people it’s most intended to help are being hurt as businesses, suddenly facing a 20% labour and employer tax increase (yes, those two are tied together because the latter depends on the former), can’t just print up the money from nowhere.

I am not going to argue about whether or not the minimum wage needed to go up.  That’s for social justice warriors and robber barons to sort out.  I am going to argue that doing it in a big jump was stupid because it causes a lot of short term pain, and stupid because it also doesn’t address the long term problem: inflation makes the minimum wage decline in value.

So let’s assume that $15.00 per hour in 2019 is a valid target.  That means the wage has to go up again or inflation will reduce its effective power in 2020.  This will continue year after year unless something is done and will end up in 2030 with people fighting for a $25/hr minimum wage.  However, it’s easy to address:  index the minimum wage to inflation.  If the minimum wage was adjusted properly, it would have come with an inflation index.

Now, if $15/hr plus index to inflation is the valid target for 2019, and the wage in 2017 is $11.60/hr, how do you get there without causing undue hardship on businesses.  Slapping a massive jump in one shot will necessarily hurt (mostly small, family-run) businesses.  A reasonable person would phase it in over time.  5 years is probably a fair time.  However 5 years from 2017 is past 2019, so already you are going to need to adjust for inflation!  Oh no!

Really, it’s not that hard.  As long as you’re below the target, boost the minimum wage each year by the greater of 20% of the difference between the current minimum wage and the target, or 70 cents.  This is picked to cover phasing the change in over 5 years if there was no inflation at all.

 

Year Target MW Diff from prev year Raise MW to…
2017 $11.60 $0.00 $11.60
2018 $15.00 $3.40 $12.30
2019 $15.00 $2.70 $13.00
2020 $15.30
(assume 2% inflation)
$2.30 $13.70
2021 $15.61 $1.91 $14.40
2022 $15.92 $1.52 $15.10
2023 $16.24 $1.14 $15.80
2024 $16.56 $0.76 $16.50
2025 $16.89 $0.39 $16.89
2026 Follow the rate of inflation

 

Had they done this, they would end up with a minimum wage that meets the target, doesn’t degrade with the passage of time and most importantly doesn’t slap people with a massive labour cost increase.

Right now, the way the government has done it, we’ll have that $15 target in 2019, we’ll have lost a bunch of minimum wage jobs outright and reduced others to less hours, and in 2025, that $15 will still be well behind the inflation curve.

 

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