Econ presentation 10mins PPT and 1000 words essay for PPT

Analysis of “Is a $15 Minimum Wage Bad for Business in N.L.? Depends Who You Ask”

Xiaotong Chen

Simon Fraser University

March 25, 2020

Analysis of “Is a $15 minimum wage bad for business in N.L.? Depends who you ask”

In the news article “Is a $15 minimum wage bad for business in N.L.? Depends who you ask” (2020), the author compares the costs and benefits of raising the minimum wage. On one side of the argument, it is suggested that a rise will affect small businesses in Newfoundland and Labrador while on the other, an increased minimum wage will facilitate a healthier economy. Opponents such as the CEO of the St. John’s Board of Trade argue that raising the minimum wage to the national standard figure would be bad for small businesses. An example has been used for a small business in Springdale that, on implementing the $15 minimum wage, would spend $100,000 more. Therefore, raising the minimum wage would lead to increased costs of goods, cut hours, and lost jobs. On the other hand, proponents of the raise such as the $15 and Fairness group argue that increased wages would boost the spending power of workers. The advocacy group’s chair states that positive impacts have been observed in areas implementing increased minimum wage as more people can contribute to the local economy. It has been suggested that the N.L government maintains the link between minimum wage raises and inflation. In light of the 70,000 people making less than wage being pushed for, more investments can be made in the province to lift them out of poverty.

Based on the article, it can be established that minimum wage is a crucial issue that does not only affect employees, but also companies and the local economy. It can be argued that the article’s use of N.L to present the argument is ideal as the jurisdiction has the second lowest minimum wage in the country. This allows a comparison to be made with other areas already experiencing the impacts of a raised minimum wage, and using these scenarios to suggest solutions for N.L. On one side, the argument made by the acting CEO of St. John’s Board of Trade against raising the minimum wage seems compelling. Not only does it bring the negative impacts of raised wages to light, but it also highlights the need for minimum wage being tied to the national consumer price index. The counterargument made by Alyse Stuart’s to this viewpoint is also indispensable, as it attempts to show how the calculus fails to consider the resultant increased power of spending among workers. Generally, the article presents the clash between commerce organizations and labor advocacy groups fairly. Both sides agree that the debate does not need to pit employers against employees. They also agree that legislators can analyze other jurisdictions on what works for them, and use such analyses to implement solutions in N.L. Based on the article, there is need for legislators, labor groups, and commerce organizations to adjust their mindset to one that addresses everyone’s needs rather than creating a rift between them. With about 30% of the people in N.L making less than the minimum wage, the article offers a relevant solution on the need for both sides to find a middle ground that will improve the lives of people and lift them out of poverty.

According to Ghani (2016), increased minimum wages will not lead to lost jobs or negative impacts on small businesses. It argues that, instead, higher wages increase people's incentive to work harder thus increasing labor productivity. When workers receive relatively higher wages, their devotion and loyalty to the company increase. The article further argues that increased baseline wages would decrease inequalities in wages, bringing millions out of poverty and increasing productivity. The author agrees that raised minimum wages spur economic growth by increasing the spending power for employees and boosting demand. As a result, the quality of life for millions of workers living below the poverty life surges. This would also result to the reduction of government expenses associated with social programs. Nonetheless, the article acknowledges that taken too far, raised minimum wages can increase unemployment and hurt small businesses. However, moderately increased wages have been shown to decrease unemployment rates in countries like Germany whose rates fell from 3 million to 2.5 million between January and July 2015.

A 2018 article on “Do Minimum Wage Increases Cause Financial Stress to Small Businesses? Evidence from 15 Million Establishments” agrees with CBC News (2020) that an increase in minimum wage can negatively affect the financial health of small enterprises. The article is based on the fact that wages make up a substantial fraction of costs incurred by these businesses. Increased minimum wages will affect small businesses especially where they cannot absorb the escalated cost of labor, thus going bankrupt. Small, labor intensive setups are more vulnerable to changes in the minimum wages especially when they are situated in competitive and low-income regions. They are likely to face high financial stress due to lowered ability to secure bank loans and higher risk of defaulting loans. Such businesses either lack the ability or willingness to pass their increased costs to customers or to adjust the labor mix by automating their processes. Increased labor costs are associated with increased cost of goods that can be passed to customers to avoid financial stress.

Zipperer (2019) agrees with CBC News (2020) that a gradual raise in the minimum wage would favor employees and the economy. The author gives a testimony based on up-to-date economic research on how a federal $15 minimum wage would be a crucial corrective for ensuring low-wage employees enjoy the advantages of economic growth. It also shows that majority of recent research indicates that increases in minimum wage have minimal or no negative impacts on employees. Instead, the raise has resulted to increased the pay of low-wage employees. As such, their purchasing power is increased hence facilitating the growth of the economy. The article agrees that workers in all jurisdictions will soon require $15 every hour for maintaining modest but sufficient standards of living.

A 2019 article by Reich and Byambaa conducts an empirical analysis on Pasadena to show how increased minimum wages in the state of California have resulted to the growth of the local economy since their ordinance in 2016. The article recognizes that businesses and employees respond to raised minimum wages in ways that affect the demand for low skill workers. Negative impacts on the business include substituting skilled employees for unskilled ones, reduced sales after raising prices, and reduced benefits and operating hours. Positive impacts of higher minimum wage include saving on retention costs from decreased employee turnover, and improved productivity. It also increases the spending power of workers as they experience increases in income and greater consumption propensities.

Figiure 1. A Graphical Representation of Unemployment Trends for Pasadena and LA.

Source: Reich and Byambaa (2019).

The graph shows downward rates of unemployment that began to flatten in earlier 2016 before the minimum wage was increased. Nonetheless, the flattened trend is a reflection of a slowdown in the growth of the state. Unlike most research sources that relate unemployment to minimum wage, this article shows unemployment trends as a reflection of regional unemployment trends rather than the effects of minimum wage policies.

While CBC News (2020) includes an argument of how an increased minimum wage may boost economic growth, Meer and West (2016) show how minimum wage decreases the level of employment over long periods. The authors investigate whether raises in minimum wage impact employment discretely or over time. The article also uses illustrative models to show negative impacts of the minimum wage on the growth of employment opportunities. According to a study conducted by the authors, a 10 percent permanent raise in the minimum wages leads to the reduction of employment rates by approximately 0.7% after a period of 3 years. Generally, the article mentions a factor of economic growth (employment rates) that is negatively affected by increased minimum wages. The authors acknowledge that there is minimal empirical knowledge on how inflation indices could change the impacts of minimum wages on employment.

Drucker, Mazirov and Neumark (2019) study evidence based on a unique administrative dataset to conclude that high minimum wages influence the distribution of income more if the business owners are at the top of the income distribution. On the contrary, the effects of redistributing this income are reduced when the employers have relatively lower incomes. These findings are in agreement with CBC News (2020) on the effect of minimum wages on small businesses. The article finds that minimum wages lead to reduced profits for firms, and labor intensive firms bear the burden of the cost of aggressive adjustment of their workforces. Profits decline more for low income business owners. This table represents descriptive statistics of tax data from Israeli Businesses between 2004-2005 and 2009-2010

Figure 2. Add a caption

Source: Drucker, Mazirov, and Neumark (2019).

The table shows that average wages increased more for companies where the portion of workers earning less than the baseline wage was high. Generally, the table shows that minimum wage only shows more improvements for wages in high minimum wage (FMW) firms. Smaller companies are affected negatively by increased minimum wages.

The six articles present similarities and differences to the impact of minimum wages on economic growth, employees, and businesses. Ghan (2016) and Reich and Byambaa (2019) agree that increased minimum wages affect small businesses by increasing labor productivity. On the other hand, CBC News (2020) and Drucker et al. (2019) agree that higher minimum wages create a burden to small businesses whose significant portions of revenue are used on wages. Zipperer (2019) support that minimum wages affect economic growth positively by increasing employee purchasing power, while Meer and West (2016) argue that minimum wages have negative impacts on employment rates over long periods of time.

References

CBC News. (2020) “Is a $15 minimum wage bad for business in N.L.? Depends who you ask”. Retrieved from https://www.cbc.ca/news/canada/newfoundland-labrador/stjohnsbot-pushing-back-against-15dollar-minimum-wage-1.5467846

Chava, S., Oettl, A., & Singh, M. (2018). Do minimum wage increases cause financial stress to small businesses? Evidence from 15 million establishments (Working paper). Retrieved from Atlanta: https://pdfs.semanticscholar.org/9989/1cf3cdd2830f5539305479ce7ccb0f76fd05.pdf

Drucker, L., Mazirov, K., & Neumark, D. (2016). Who pays for and who benefits from minimum wage increases? Evidence from Israeli tax data on business owners and workers (National Bureau of Economic Research Working Paper 26571). Retrieved from Cambridge: https://www.nber.org/papers/w26571

Ghani, N. (2016). The impact of minimum wage on small businesses, workers, and employment in the United States. International Journal of Humanities and Social Science, 6(10), 1-5.

Meer, J., & West, J. (2016). Effects of the minimum wage on employment dynamics. Journal of Human Resources, 51(2), 500-522.

Reich, M., & Byambaa, U. (2019). Pasadena’s minimum wage policy effects on workers, businesses and the local economy. Pasadena: City of Pasadena.

Zipperer, B. (2019, February 7). Gradually raising the minimum wage to $15 would be good for workers, good for businesses, and good for the economy. Retrieved from https://www.epi.org/publication/minimum-wage-testimony-feb-2019/