Earlier this election, I did something that I imagined I might do from time to time if it were warranted: I endorsed an NDP policy.
In this particular occasion, it was the NDP jobs plan: a pledge by the NDP that, if elected to government, they’d offer business owners an incentive to hire in the form of a tax credit. The credit would be worth 10% of the salary of any new hire up to $50,000. It wasn’t a perfect policy — it did nothing to account for productivity-related issues such as capital — but it was a good policy.
But what if a particular employer wasn’t hiring within, say, the $35,000 – $50,000 per annum range? What if a particular employer is running a retail store, a restaurant, custodial company, or anything else with low margins?
The NDP’s most recent trick has been not only to emaciate that incentive, but to compromise your ability to maintain the staffing level these businesses already have.
That trick is proposing a $15 minimum wage.
At first glance, a $15 minimum wage seems like a nice thing to do. It puts more money in the pockets of these earners, or at least so it would seem. In reality, it would lead to at least one of two things, but more likely a combination of each: inflation or layoffs.
When government raises the minimum wage, business owners have to find a way to cover those additional costs. Accordingly, the price of their good and services will increase, nominally at a rate equal to the wage increase. As these price increases spread across the economy, even those for whom the increases were orchestrated find themselves no further ahead than they were before, and people who were already earning more than minimum wage now find themselves further behind. That’s inflation.
The other possibility is that employers may lay off workers. Fundamental economics teaches that entrepreneurs hire labour until their marginal productivity (the value of the product of their work) is equal to their marginal cost (their wage).
A $15 minimum wage effectively banishes anyone whose marginal productivity is less than $15 per hour from the economy.
At least one of these two things will happen, but the more likely scenario is that a mixture of each will take place. Employers will likely lay workers off until they have the minimum amount of staff required, then raise the prices of their goods and services in order to restore their profit margins. Guess what, NDP? Entrepreneurs are in business to earn profit. Perhaps you could legislate a higher minimum wage, but you can’t legislate that away.
A slowing rate of new hires combined with layoffs leads to slow economic growth, or even economic shrinkage. In short, stagnation. When stagnation is combined with inflation, economists call it stagflation.
Under staglation the economy doesn’t put people to work even as the buying power of a dollar declines drastically. Everyone becomes poorer, and they all become poorer together.
That’s bad. And so is the NDP’s economic plan. They may have earned some early plaudits based on one good policy, but then they wiped those out by proposing a truly awful one, one that not even minimum wage earners will vote for if they understand what will inevitably follow.