IKEA recently announced an increase in its average minimum wage to $10.76 (WSJ – June 26, 2014), while the Gap previously said it would raise its minimum hourly rate for U.S. employees to $9.00 in 2014 and $10.00 in 2015 (WSJ – Feb. 19, 2014). Both decisions have been linked to President Obama’s call for Congress to increase the federal minimum wage rate to $10.10 per hour.
The leading argument against a minimum wage is that it puts pressure on smaller employers, forcing some of them out of business. I don’t believe larger retailers generally have the elimination of their smaller competitors as a primary motive (although higher market share is normally a goal), but higher average wages in the industry will hurt those too small to enjoy the economies of scale larger firms use to bring down unit costs.
When faced with higher HR costs, companies either increase prices, cut others costs, or take a hit on their bottom line. The problem with a minimum wage is that, while it (ostensibly) helps workers, it (potentially) hurts larger employers, it (may) kills smaller employers and it (can) leads to higher prices. Legislating a minimum wage takes a business decision out of the market and puts power into the hands of politicians.
But is it a business decision or an economic decision? The purpose of a minimum wage is to increase the well being of low-wage employees. It seeks to ensure that people who work 40 or 50 hours a week make enough money to support themselves and their families. This comes at a cost—the loss of jobs. The Congressional Budget Office estimated that raising the minimum wage to $10.10 per hour would reduce US employment by 500,000, but also lift 900,000 Americans out of poverty (CBO – Feb. 2014). Is it better that more people work or that those at the bottom make enough money to live?
IKEA will base their minimum wage on a living-wage calculator that takes into consideration the local cost of housing, food, medical and transportation costs, plus annual taxes in each of their locations (WSJ – June 26, 2014). Instead of legislating a minimum wage, a more market-friendly alternative might be to publish a ‘living-wage’ indicator in the major urban centres throughout the country. One of the major necessities and benefits of a free market is information.
A transparent, living wage indicator would provide employers, employees and consumers with more information with which to make the decision whether to engage in business with one another. Price is not the only valid consideration in a free market system. All parties are free to base their decisions on whatever facts and factors they determine to be relevant and important to them, including whether an employer pays their staff enough money with which to sustain themselves.
In the parable of the Labourers in the Vineyard (Matt 20:1-16), Jesus tells about an employer who paid all of his day labourers the same amount, even though some worked a full day and others, only a few hours. He told the workers who complained “‘Friend, I am doing you no wrong. Did you not agree with me for a denarius? Take what belongs to you and go. I choose to give to this last worker as I give to you. Am I not allowed to do what I choose with what belongs to me? Or do you begrudge my generosity?’” (Matt 20:13-15)
The owner of the vineyard had the right to pay whatever wage he had agreed with the workers, but Jesus noted that he did so generously. Employers and employees should be free to enter into a contract based on an agreed wage, but in a truly free market, information helps everyone in their decision making process. Employers are free to choose what to do with what belongs to them, but employees are also free to be part of that process and consumers are free to decide whether to ultimately buy whatever service or product they provide from them.Photo Credit: PerformanceSolutions via Compfight cc