Belief that market forces will solve social problems is naive

When Labour Minister Joan Smallwood was in Kamloops recently, she announced that the government of B.C. was planning to increase the minimum wage.  While the announcement was met with approval by those working in low paying jobs, their joy was not shared by some of Kamloops’ business leaders.


The past chairman of the B.C. Chamber of Commerce, Al McNair, said that raising the minimum wage will harm our economy.  The key to higher wages, he added, is a thriving business community.  He was referring to the principle of supply and demand as applied to labour.  When the economy improves, more people are employed, which in turn, creates a shortage of labour. A shortage of labour drives up the value of labour, and wages increase to attract workers from that diminished pool.  But is this a classic example of the supply and demand forces that drive a market economy?

McNair didn’t offer any examples of where increased economic activity has a greater effect on wages than increased minimum wages.  But there is a perfectly good example right next door.  We can use it as a test case.

Alberta has the lowest unemployment rate in the country and its minimum wage is lower than B.C.’s:  $5.90, compared to B.C.’s $7.15.  So, wages for low paid jobs should be greater in Alberta.  But they are not —  28 per cent of Albertans work in low paid jobs, compared to 19 per cent for B.C., according to a study done by Statistics Canada Labour Force Survey, 1997.  For purposes of the survey, low pay was defined as less than $9.24 (two-thirds of the Canadian median wage).

So, why doesn’t the supply and demand theory of wages work in this case?  Minimum wages set a standard for salaries –they are used as a starting point.  Two opposite forces are at work: a low starting wage keeps wages low and a shortage of workers tends to drive wages up.  In the case of Alberta, the minimum wage has a greater effect than the relative shortage of workers.  Forces affecting the cost of widgets does not affect wages.

In fact, the minimum wage has a greater effect on wages than worker shortage in all provinces, according to the same study.  So does union membership.  In both Alberta and B.C., only about 6 per cent of unionized workers were in low income jobs.

Belief that market forces will solve social problems, such as low pay, is naive.  While supply and demand is unquestionably fundamental to the function of  markets, it is not applicable to social problems, like child poverty, national health and public education.  Yet, profit driven business is often quoted as a solution to our problems.

Market forces are very good at concentrating wealth.  Canada’s rich are getting rich and the poor are getting poor. Only governments can redistribute wealth and help smooth out disparities in health and education.  And while the goal of government is not to make a profit, nor should it be, governments run social agencies more efficiently than business.  Government efficiencies are the result of the scale of operation, and from the fact that senior administrators are not collecting millions of dollars.

I would have thought that the business community would be pleased that B.C.’s working poor could now make a decent living. The work ethic is something worth cultivating.  Pride in work and the sense of self-sufficiency is something that everyone understands.

The working poor should be rewarded for their effort, rather than punished through low working wages.  A decent minimum wage is often the difference between making a living and seeking welfare.  If British Columbians are kept working, they are contributing members to the economy, not dependents on handouts from society.

Minimum wages have not kept up with inflation.  Whereas unions have been able to bargain higher wages, B.C.’s working poor have not.  The result has been that they have been driven to the brink of poverty and despair.  Since business will not deliver higher wages, the government must intervene.  Failure to do so will result in increased costs for social assistance to all British Colombians.


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