The injustice of the minimum wage

You have to admit the timing was awful. Two weeks after legislating a 25% pay increase for themselves, to more than $110,000 apiece, members of the Ontario legislature approved a 3.2% increase in the province’s statutory minimum wage: from $7.75 an hour to $8.00.

The Toronto Star was properly appalled. Granted, it was the fourth increase in the minimum wage in as many years, and true, the paper was not actually opposed to the politician’s pay hike, and no, the paper had not seen fit to raise its own workers’ pay by 25% the last time they negotiated -- they got roughly 8% over three years -- but still: 25 cents. Eight measly bucks. When everybody knows the minimum wage should really be $10 an hour.

The paper has been campaigning for months for a $10 minimum wage, echoing an NDP private member’s bill. Why $10? Why not $9, or $11? No one pretends that $10 an hour marks the difference between misery and happiness: even at 40 hours a week, that’s still only $20,000 a year, and besides, hardly anyone works full-time for the minimum wage. (Indeed, hardly anyone works for the minimum wage at all: less than 5% of the province’s workforce.) So what’s so special about a $10 minimum?

If the answer is “because 10 is a nice round number,” why not $20? Or -- an even rounder number -- why not $100 an hour? If your answer to that is “because that would throw a lot of people out of work,” then why should you not expect a $10 minimum wage to throw some people out of work? Or if an increase in wages has no effect on the demand for labour, then why stop at $10? Why not really do something for the working poor?

The whole point of a minimum wage is that the market wage for some workers -- the wage that would just balance the supply of and demand for unskilled, transient, or young workers in highly unstable service industries -- is deemed to be too low. If, accordingly, it is fixed by law above the market level, it must be at a point where the supply exceeds the demand. Economists have a technical term for that gap. It’s called “unemployment.”

Advocates of minimum wages either reject that elementary logic, or they don’t care. The NDP is an example of the first: MPP Cheri DiNovo, the sponsor of that private member’s bill, refers dismissively to “all those spurious arguments that this is somehow going to destroy the economy.” But The Star, intriguingly, is in the second camp.

“While there might be some job losses because of raising the minimum wage to $10 an hour,” the paper opined in a recent editorial, “such an increase is fully justified” by the need to make the minimum wage “more reflective of the real levels of income needed by Ontario’s working poor to enjoy a decent standard of living.”

Leave aside that the working poor will still not be enjoying anything like a decent standard of living, even at $10 an hour. What principle of social justice would suggest it was okay to toss some of the most vulnerable members of society on the scrap heap, forcing them out of their jobs altogether so that their still-employed co-workers could snag a raise?

The most influential philosopher of contemporary liberalism in fact prescribes the opposite. In A Theory of Justice, John Rawls argues we should measure our commitment to justice against how well the very worst off in society are faring, on broadly “there but for the grace of God” grounds. The aim of a just society should be to maximize the minimum -- to improve the lot of those worst off, first off. That would suggest putting the interests of the unemployed ahead of those who already have jobs, rather than, in effect, locking the jobless out of the market.

The point is not that those struggling to get by on very low wages should be left to their own devices. The point is that wages, properly considered, are neither the instrument nor the objective of a just society. When we say their wages are “too low,” we mean in terms of what society believes is decent. But that’s not what wages are for. The point of a wage, like any other price, is to ensure every seller finds a willing buyer and vice versa, without giving rise to shortages or surpluses -- not to attempt to reflect broader social notions of what is appropriate. That's especially true when employers can always sidestep any attempt to impose a “just” wage simply by hiring fewer workers.

Social objectives should be socially financed. When we think about it, it’s not a minimum wage we’re really aiming for: it’s a minimum income. If so, then the proper approach is to supplement the incomes of the working poor, through the tax-and-transfer system -- not fix their wages and hope for the best.