It’s a Free Country – Mostly

There’s a lot of hubbub amongst the GOP that people will no longer have to work low-wage jobs to pay for their healthcare in the U.S.. After all, shouldn’t we all be forced to work jobs that we hate in order to stay alive until death?

If people don’t have to work that second job, or that extra 20 hours per week to pay for healthcare, then why wouldn’t they want to work anyway, as it would put extra money in their pocket that they could spend? One answer – low wages and exchange theory. It’s simply not worth it. How not worth it? Let’s do the math:

Based on federal minimum wage, per week: $7.25 x 20(hrs) = $145. I’m not going to include taxes, or states that have a higher minimum wage, for the purposes of comparison later. The fact is that most states (29) do NOT have a higher minimum wage; those that do are lucky.

There’s another country where people don’t have to work for their healthcare. Okay, there’s a LOT of other countries. In fact, all of the advanced OECD countries are places where people don’t have to work for their healthcare. But the one in particular that I’m thinking about is the closest to Americanized capitalism – Canada. Do Canadians choose to work more? The data is sketchy, but most data points to “yes.” Their minimum wage structure is also much different.

The interesting thing about Canada and minimum wage is that each Province gets to decide their minimum wage, not the federal government. Unlike the U.S., Canada somehow realized that economic conditions are different in each part of the country.

Quebec just announced that it’s raising its minimum wage to $10.35 per hour (and waiters/waitresses will get $8.90). The last time they raised minimum wage? Last year. Quebec is seeing higher utility rates. Instead of exerting control over the utilities (which good “socialist” countries should do, right?) they raised minimum wage to meet higher utility costs

Ontario is expected to raise its minimum wage to $11 per hour, and tie future raises to inflation. Ontario will become tied with Nunavut (the polar region) for the highest minimum wage in Canada. The economic factors are very different between Nunavut, Ontario and Quebec.

So let’s do that math, based on Quebec’s $10.35:

$10.35 x 20(hrs) = $207. That’s a $62 difference per week from the U.S. For Ontario, that’s an extra $75 on their upcoming minimum compared to the U.S.. While the Loonie has been taking some losses against the dollar recently, it’s not that significant when considering the cost of living and inflation in Canada.

What about the cost of living? Food commodities are generally cheaper in Canada than the U.S. Canada’s economy has traditionally been manufacturing and agriculture. Manufacturing took a beating in the 2008 recession, but Agriculture in Canada is generally more stable than in the U.S. And Canada places heavy tariffs on agriculture exports, so things like the price of Pork, Beef, Dairy, and Wheat remain generally lower than in the U.S.

What about inflation? After all, if the provinces raise their minimum wage, then things become more expensive, right? No – Canadian inflation is actually at a slower pace than the U.S.

In this chart, the blue line is Canada’s CPI and the red line is the U.S. CPI:

US Canada CPI 2007

So the interesting part for Ontario is that when they tie minimum wage to inflation, if the prices of stuff decreases, so does minimum wage. Deflation becomes much less of an economic issue because people won’t need a wheelbarrow full of cash to buy a loaf of bread. Tying wages to inflation actually stabilizes an economy in bad times as well as good times.

People are going to choose the path of least resistance. And now that folks are no longer east of the rock, and west of the hard place, they are certainly not going to freely place themselves east of the rock and west of the hard place. And that’s exactly what the right is complaining about.

So now the question for GOP is: now that people have chosen to exercise their new-found freedom in the labor force, or as the CBO put it in economic-ese: “workers withholding their supply of labor,” do people (workers) have the right to exercise their freedom to choose? Or is the free market just “mostly” free?

This entry was posted in Economics, Labor, Wages. Bookmark the permalink.

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