Newfoundland Wages

A lot of people campaign for an increase in wages. The usual way this is done is by raising the minimum wage. People have been led to believe that in order to increase wages, government must be involved. Otherwise, goes the argument, greedy companies will just pay people 50 cents an hour. But is this really true?

Only about 7% of Newfoundland workers get minimum wage. So what about the other 93% of workers. Why are they paid more than that? The answer is the law of supply and demand. Wages increase as demand for labor also increases.

A few years back, dozens of Fort McMurray companies came to the province to attract workers. Many companies were offering a $20,000 beginning bonus plus free housing for 2 months. On top of this, many would earn $30-$100 per hour, sometimes even more. So are these companies just really generous and caring? No, these companies simply realize that in order to have enough labor, they have to offer attract terms. All these companies are competiting for labor, and as competition for a scarce resource increase, so do wages.

In fact, in an article I read about this phenomenon, a Newfoundland economist said Newfoundland oil and gas companies would have to offer similar deals to workers in order to keep them here.

All across the city right now, there are banners advertising positions for low-end jobs. There is a great deal of competition for labor. Many of these organizations are offering more than minimum wage to attract workers. These are all market forces and have nothing to do with government intervention.

Back to minimum wage. Minimum wage is actually detrimental to workers. For every increase in minimum wage, there is a decrease in demand for employees. Each employee can only be paid for the productivity. An employee who only adds $8 per hour of value to a company cannot be hired for $10 per hour. We have examples of this. Remember when you could get full-serve at gas stations. This service is now extremely rare. Why? Because companies were not making enough additional revenue by having this in place to justify the minimum wages. Another example is a restaurant may like to hire as many waiters or people at the checkout as possible. But they only have a certain budget for employment. By raising the minimum wage, the lower skilled workers are left out.

Those who suffer the most from minimum wage laws are the ones it is meant to help. Disadvantaged people are hurt by these laws. People with disabilities, people who are illiterate, minorities with trouble speaking English, etc. will all be left out because people without these handicaps will be hired first. Then instead of getting the $8 per hour that a company would be willing to pay, this person receives nothing, or becomes dependent on the state for survival.

If this person had been given a chance at the bottom rung of the ladder, they may improve their skills and with these improved skills would be able to receive higher wages. As it is currently, they are held back by bad government policy.

When the government tries to help, there are generally unintended consequences. This is the case with minimum wage laws.