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MGMT70014 Business Facilitation And Communication

What Happens When Minimum Wage is Increased?
Questions for Discussion
1. The two sides in the minimum wage debate hold very strong views. Explain the motivations of the two sides and how this influences the positions they hold.
2. Consider the following statement: “All things considered, raising the minimum wage will result in good outcomes for workers and for Canada’s economic performance.” Do you agree or disagree with the statement? Explain your reasoning.
3. Do you think that companies have a social responsibility to pay higher wages? Explain your reasoning.
What Happens When the Minimum Wage is Increased?

In 2017, the Ontario government decided to raise the minimum wage in the province (to $14 per hour in 2018 and to $15 per hour by 2019). This was part of a trend in several Canadian provinces and U.S. states to boost minimum wages. The announcement generated an immediate reaction from two different groups. Labour unions and social activists said it was a great idea, but most business owners panned the idea. What a surprise!
Those who welcome the change say that it will improve the economic situation for workers receiving the lowest pay, which will help reduce income inequality in Canada. Supporters point out that the percentage of the working age population with jobs is higher in countries such as
Sweden, Denmark, and Germany, even though those countries have higher minimum wages than Canada. They also note that business owners respond to a higher minimum wage by finding ways to improve worker productivity (labour productivity is higher in Germany and in Scandinavian countries than it is in Canada).
Business owners who oppose the change (e.g., those in the restaurant industry) argue that increasing the minimum wage will force them to either reduce staffing levels or raise prices (or some combination of the two). The change will therefore reduce employment opportunities,
particularly for workers in the 15–24 age bracket. This is a bad thing because young workers usually take minimum wage jobs as they embark on their careers. If fewer of these jobs are available, the long-term career prospects of young workers are reduced.
In a debate such as this one (where adversaries hold strong ideological positions), it is often the case that more heat than light is generated. Consider this incident: When Loblaw CEO Galen Weston commented that the $15 minimum wage would cost his company about $190 million in increased wage costs, he was immediately accused by the social advocacy group Leadnow of trying to sabotage the Ontario government’s move to raise the minimum wage. Weston responded that Loblaw does not oppose the wage hikes, but that he felt he had a responsibility to inform his investors of the impact the changes would have on Loblaw’s bottom line.
Here’s another example: In July 2017, a group of 53 economic experts who support an increase in the minimum wage sent a letter to Ontario Premier Kathleen Wynne saying that fearmongering by opponents of the minimum wage increase was out of step with economic research. This statement was immediately challenged by analysts at the Fraser Institute, who said that what the 53 experts were saying was false and that economic research over the past 30 years has consistently shown that increases in the minimum wage reduce job prospects for young workers.
Some companies have proactively increased the wages of certain employees. When the CEO of insurance giant Aetna, Mark Bertolini, learned that many of his lowest-paid employees were on public assistance, he decided to increase their wage to $16 per hour. The increase affected 12
percent of Aetna’s 48 000 employees. The lowest-paid employees (who had a base pay range of $12 per hour) received a 33 percent pay increase, and the average pay increase of employees who were affected by the change was 11 percent. The total cost of the wage and benefit
enhancements was estimated at $14 million in 2015 and $25 million in 2016. That may sound high, but research shows that low-wage workers are more likely to quit than their higher paid counterparts. This means that high turnover costs are incurred at companies that pay low wages. At Aetna, the costs associated with high employee turnover (e.g., recruiting, hiring, and training new employees to replace those who leave) were about $120 million a year. That cost far exceeded the cost of raising the pay of employees. So the company actually saved money by raising the pay of its lowest-paid workers.
Research has shown that raising the pay of employees increases their productivity. One study showed that more than half of the cost of a pay increase can be offset by increases in employee productivity and decreases in turnover-related costs. By offering higher wages, companies are
also able to recruit and hire better employees and to decrease the likelihood of disciplinary issues. Janet Yellen, chair of the Federal Reserve System Board of Governors in the United States, says that higher wages also reduce shirking by employees because they don’t want to lose a high-paying job. The benefits of higher wages also extend to quality and customer service. Several studies show that employers reported improvements in both customer service and the quality of production.

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