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PostPosted: Mon Jan 16, 2012 2:08 pm
 


Jan. 10, 2012

Minimum Wage: An Overlooked Multifaceted Economic Gem

Until recently in Canada the legislated minimum wage was quite low, $7.85 to $8.00, providing protection only for the worst off workers – teenagers and immigrant women. The de facto minimum wage was a little higher in the main cities and people could find jobs for $8 to $10 an hour there generally. There’s considerable concern that the worst off families, people working for the de facto minimum wage, can’t properly afford food for the families. This offends as it’s in rich cities. In this essay I outline the unsung advantages of an aggressive minimum wage and argue in these times of deficit and debt managing the labour markets would be a more fruitful route to progress rather than tweeking the nanny programs here and there. Economists are not focused on such idea so my material should seem refreshing.

In the first place countries with immigration have always had a little unemployment from the bureaucratic nature of immigration. This unemployment suppresses the de facto minimum wage and long term encourages the growth of the low paying sectors. In Canada now we have this plaque of low paying jobs, about some 23% of the jobs in Canada pay $12 or less. It’s interesting to note that this suppression of the de facto minimum wage is actually a tax on the worst off worker. Judging from wages in the Oil Patch where there are actual labour shortages the difference is about $2 an hour for a tax of $4,000 a year. It’s crazily socially backward but economists only say the unemployment promotes long term growth. So legislating a firmer minimum wage would not so much be a nanny state hand out as getting the government off the backs of the worst off workers.

The rap against minimum wage is it would cost jobs at the bottom. Sometimes it is argued minimum wage takes jobs from those that need them the most. I argue the match up between worst jobs and low performers is a myth as the general labour component of the work place is a whopping 50% of all jobs and also there is a great deal of turnover at the bottom, it’s very dynamic such that you can generally get a job. In any event raising minimum wage would inflate and cost jobs. What I propose is the legislated minimum wage be restricted to the growth cities that can replace the lost jobs. The actual cut would come from trimming immigration to these cities, which can be done simply as I explain latter.

It’s is to be noted that while bureaucratic immigration caused some unemployment and this encourages growth in the low wage sectors the usual behavior of the free market is apparent and it is to squeeze and downsize the low wage market and leave behind better jobs, quite the opposite. If the sqeezing is too strong there’s a shallow recession. SE Asia is the example of this. When growth outstrips the labour market the effect is worst businesses can’t find staff and they downsize, move to another area or go bankrupt altogether. The moving around is a network effect where people move up and junior people replace then, getting limited on the job training as required. It’s not a one to one effect where the worst off moves immediately to a better job. The net effect is the minimum wage sector is squeezed, inflates a little and puts pressure on these worst employers. The economy ends up with the labour force having what they call higher-value-added jobs. This is progress. This is exactly what Japan did in the 1950s thru 1970s to become a rich country. The domino effect at the bottom is the alternative to having immigrants take the jobs the-born-here do not want.

This process of moving up the ladder by the free market is slow and there may be more frequent but shallower recessions associated with it. This is the alternative of immigration reform, recessions, but immigrant reform advocates do not articulate it much. Nevertheless with either the free market or increasing the legislated minimum wage in the best cities the average wage and the average wage of new jobs goes up. This is progress. The idea with the legislated minimum wage is to start with the best cities and then eventually move on to most cities.

There’s a need to have more accurate immigration in regard to the numbers. There is a simple solution to this. And that is to reduce the national quota but then have special movements of business class, skilled, immigrants to any city that came to full employment. You may need a special auditor to get the numbers right because of competing demands. To start with he or she would have the official labour force survey of cities which is made monthly. So a city-by-city national movement plan as well as a city-by-city minimum wage plan becomes your national economic strategy and it makes sense to fund this program properly. A city-by-city movement of immigrants would tighten the labour markets by itself but the legistated wage idea make improvements surer and fairer, more completely compensate for the depression of wages by immigrants and opens the door to a more aggressive program where you force minimum wage and job quality up. Such would be a strategy for progress.

The understanding on the street is the population is aging and we do need more immigrants to take the jobs that are going to pay the social cost of retirees. However this is premature. The unemployment, low wages, unemployment in involuntary parttime and people that have dropped out of the labour force all indicated we are still looking at a picture of substantial unemployment and this will take years to clear up. If in ten years the official unemployment edges down you could still test and see if the policy of high minimum wage will produce high value on average jobs readily.

It’s possible to move people to higher value jobs partly because the economy at the bottom is so soft and many of the jobs there are moveable or simply expendable. The economies at the bottom in the cities are characterized by restaurant and fast food establishments but also because retail in unbelievably high. One in ten jobs in Canada is retail and many of these are low payed service work. Decades ago the sector was about half the size. The field is now over invested. A proper wage in retail would be like the bust in I/T, rationalize it. The businesses that are busy can afford a slight inflationary raise in wages. You can do without certain goods and services but we have rather a lot of choice in our markets already so this is a small change.

There are some macro economic advantages to raising minimum wage.

An increase in minimum wage would improve productivity. Firstly this would be by mechanization. As wages increase relative to the cost of machinery the traditional replacement of labour with machinery would continue. Secondly the small businesses in Canada is highly fragmented and unproductive of capital, rent and inventory so reducing the number of outlets by competition would address this. Finally the worst businesses are not productive and worst businesses would close down or be exported such that the average productivity of the remaining jobs would be skewed up.

Another aspect of minimum wage is the subsidy such workers receive through the nanny state. Studies indicate that total taxes are nearly flat. With total taxes about 40% and the average wage in Canada $20.50 this means a worker that takes in $9.00 an hour net would pay some $9,000 a years less in taxes. We have built a system and continue to build a system where worst jobs are nearly welfare of a sort. We need a dynamic for building down that problem with the economy.

Another advantage of high minimum wage in growth cities is it would encourage businesses to relocate to less expensive areas. In Ontario here there are small cities with little growth only a short trucking run from major centers. In the mean years the natural move to smaller cities by business has been suppressed by cheap immigrant labour.

Similarly people can move from the regions to the centres if they become economically stressed. A higher minimum wage as a social net would facitilate this.

One advantaged of better jobs at the bottom is people in that predicament can be persuaded to work. Welfare in Canada is presently mean and statistics show better jobs at the bottom will cause people to reentre the labour force. For all the difficulties at the very bottom people will chose the work option if conditions are slightly better. At the same time the government has too much to deal with already to give people on welfare a raise and this alternate route of the economics of minimum wage is a better idea.

The same can be said for poverty. Governments is at about it’s limit of transfers to the poor and some rationalization of the labour force by minimum wage maybe the next step.

A change in wages and prices causes millions of people to make different decisions, engages Adam Smith’s

Productivity is still increasing; about ½% nationally annually. In ten years, which is the scope of this essay, that would add another 50 cents to our $12.00 base for $12.50 an hour. That would make the base rate for a newly arrived couple in a city $50,000 annually. That’s the figure for a rich country. In addition the bottom is heavily subsidized as I mentioned and I calculate about $3 an hour at that $12.50. So the life style of our couple would effectively be $62,000. The fix is in with the nanny state already.

If our Immigration Department went back to importing workers from the third world and they took the working class jobs they would displace the born-here upward to higher-value-added jobs. It’s a social contract, desperate people from overseas come here and do the worst jobs while their children are integrated into the middle class.

There are social issues around a better minimum wage as well. A better minimum wage would be an economic shock absorber, help youth as they face the vagaries of the free market directly and also be helpful to women. Women are still largely oriented to child care rather than training for a good career. They live longer and face a wild divorce rate. Much of low wage work is done by women at this time.

Some people believe if you have a rich country you should pay a reasonable minimum wage. If you are in the harness for 40 hours a week you should be paid. This may be reason enough to raise minimum wage, to be fair, but it is auxiliary to the economic issues spelt out here.

The cost of inflation from raising minimum wage would be ameliorated. In the first place this is by productivity, which I explained. Secondly the worst businesses would be closing and the high subsidy they get would be eliminated. Also in the intra family subsidy that minimum wage workers tend to get would be reduced and over a life time this may touch every family – as most families have a minimum wage worker at some point. However the main cost benefit would come from the attendant tightening of the labour market. Getting the labour market participation level higher would produce new tax flows, more than enough to cover the inflation entirely. Close examination of the current labour market indicates many people have dropped out of working to do other things and this would be because the softness of the labour market at the bottom and the fierce competition to get anything better.

In this era of debt and deficit managing the labour market could become the alternate route to social progress than increasing funding to the nanny programs. A legislative minimum wage, adequate training on the job, moving jobs and moving to the job, more people working, downsizing the very bottom could be come the tools of choice for social progress and focus of people and government – and all flow from a better, a strategic minimum wage. A new social awareness of the labour market’s importance would allow the people, the government and the Bank of Canada to keep in mind these tools and deliver a more prosperous Canada.


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PostPosted: Mon Jan 16, 2012 2:23 pm
 


PRESS RELEASES

CIPR/CRPI Calls for Cap on Immigration Levels

October 18, 2011
The Centre for Immigration Policy Reform/Centre pour une Réforme des Politiques d´Immigration (CIPR/CRPI) is calling for a ceiling of 100,000 immigrants a year over the next five years. In response to Citizenship, Immigration and Multiculturalism Minister Jason Kenney´s call for input from stakeholders and the public on immigration issues, CIPR/CRPI is also calling for the proportion of economic class immigrants, their spouses and dependent children to be increased, with the levels of family class and protected persons proportionally decreased.

“Since immigration was raised to levels of a quarter of a million and more in the late 1980s, there has been a continued deterioration in the performance of new immigrants in the Canadian labour market which, given the recent recession and current sluggish state of the economy, is likely to worsen,” said Patrick Grady, an economist, CIPR Advisory Board member, and author of the submission to CIC. “Labour force surveys reveal that recent immigrants have been hit much harder by the 2008-09 recession than other groups,” he added. “With immigrants paying fewer taxes, other taxpayers must pay for the social benefits they receive. These costs now amount to between $16 and $23 billion annually.”

The question that the Government needs to ask, which is not posed in the background material, is: Does it really make sense to bring in so many new immigrants each year when they will only become underemployed or unemployed or take jobs needed by Canadians? The overall objective should be a healthy economy with an increase in per capita GDP, not a large economy with the decrease in per capita GDP current mass immigration policies are inducing.

In addition to reducing overall immigration, CIPR is recommending a mix of 75 per cent economic class immigrants, 10 per cent family and 15 per cent protected (refugees). The current mix is 60 per cent economic, 26 per cent family, and 14 per cent protected.

To read the complete submission and other recommendations, please visit CIC Consultation PDF

http://www.immigrationreform.ca/english ... =894&id=74


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PostPosted: Mon Jan 16, 2012 4:19 pm
 


Just a note. When economists consider immigration issues they tend to measure how the immigrant class is doing, not it's effects on Canada. They do this monkey see monkey do research. While the recommendations are generally what you can do about immigration the suggestion that they cost $16 billion a year is misleading because it's based immigrants slot into working class jobs while they are really coming on top of unemployment.


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PostPosted: Mon Jan 16, 2012 4:34 pm
 


Jesus people. Source your copy and paste jobs.


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PostPosted: Mon Jan 16, 2012 5:34 pm
 


It's his own "work"....he's been pushing it on other sites as well.


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PostPosted: Tue Jan 17, 2012 9:27 am
 


Minimum wage is an act of economic terrorism against people whose skills are not worth the minimum wage, thus forcing them into a permanent life of subsidized existence.


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PostPosted: Tue Jan 17, 2012 9:29 am
 


OnTheIce OnTheIce:
It's his own "work"....he's been pushing it on other sites as well.


Oh, you don’t have to snarl at me. These are my specialty and good ideas. I’ve posted them repeatedly at CKA but I wrote them up in this catch phrase, provocative manner and posted them again for response.

My ideas have circulated a bit, and particularly in Parliament. Former Liberal Immigration Minister Judy Sgro writes me she personally took them to then Leader Michael Ignatieff but says he didn’t get that jobs were political even.

One problem of promoting ideas is people question the speaker. What I get isn’t snarl but interest in the ideas and sort of a “coming from a plain Jane personality”.

By the way if you have something to say the MPs are good people to write to. They have correspondence personal and this represents a huge communication resource. You write to the Fraser Institute or someone and what you find is they are swamped with information. So this is one aspect of Parliament that works.


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PostPosted: Tue Jan 17, 2012 9:41 am
 


Bruce_the_vii Bruce_the_vii:
These are my specialty and good ideas.


Good ideas, like beauty and humility, are in the eye of the beholder.


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PostPosted: Tue Jan 17, 2012 9:54 am
 


Bruce_the_vii Bruce_the_vii:

By the way if you have something to say the MPs are good people to write to. They have correspondence personal and this represents a huge communication resource. You write to the Fraser Institute or someone and what you find is they are swamped with information. So this is one aspect of Parliament that works.


MP's are no less swamped. Tons of emails per day...from invitations to requests to help with paying rent they really don't have people to field incoming emails such as this.

Frankly, these emails are forwarded to the MP (maybe) and rarely acted upon.

Sorry to burst your bubble.

I do contract work for a MP here in Toronto so I know the inner workings of the office quite well.


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PostPosted: Tue Jan 17, 2012 10:02 am
 


Maybe so but the staff represent a resource and the think tanks and that in Canada don't even have that.

I've gotten a certain amount of response to what you call an email like this including four letters from Bob Rae. That's resource.


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PostPosted: Tue Jan 17, 2012 11:08 am
 


Bruce_the_vii Bruce_the_vii:
including four letters from Bob Rae.


Any reply from Bob Rae on economic issues would only be fit to line the bottom of bird cages.


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PostPosted: Thu Jan 19, 2012 12:06 am
 


I think the existence and need of a minimum wage speaks loads against the idea of "the free market will take care of us".

If the free market really was going to do such then there would be no need for a minimum wage as companies would cut high execs salaries to tempt the best people they can to come work at every level of their company.


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PostPosted: Tue Apr 17, 2012 2:03 pm
 


BartSimpson BartSimpson:
Minimum wage is an act of economic terrorism against people whose skills are not worth the minimum wage, thus forcing them into a permanent life of subsidized existence.


For all I usually disagree with Bart on this is one time he's right on the money.

The fact that minimum wage has to exist is proof both that a free market does need at least some regulation as well as that some employers are just better then others in terms of being fair.


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PostPosted: Wed Apr 18, 2012 12:15 am
 


Er, Bart's arguing against the minimum wage, ie that the free market does not need this regulation.

You're not a newbie. Why'd you dig up this necro?


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PostPosted: Wed Apr 18, 2012 2:33 am
 


Well, as someone who has had to live on minimum wage, I disagree. I, and a lot of my friends, were pretty damn grateful for minimum wage.

Without minimum wages, some employers would be charging employees to work for them.

Sixteen tons, and what do you get?
Another day older and deeper in debt
St Peter don't you call me, 'cause I can't go
I owe my soul to the company store.


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