Minimum wage

On April 1, the minimum wage in Nova Scotia increased from $8.10 to $8.60 an hour, marking a 6.2% increase. The minimum wage is meant to protect some of the most vulnerable workers and guarantee a minimum standard of pay. Unfortunately, this doesn’t happen.

Supply and demand teaches us the following: as the hourly wage increases, more employees are willing to “supply” labour. As it decreases, these employees are less willing to supply labour. These two characteristics are very intuitive, as wages increase more people are willing to work, plain and simple. (This has been illustrated in Figure 1 with the line marked “Supply”.) For employers the opposite rings true, as the minimum wage rate decreases more employers are willing to demand labour, and vise versa. This as well is intuitive, the more expensive employees become the less willing companies will be to hire more employees. This has been illustrated with the line marked “Demand”. The point at which supply intersects demand is what is called equilibrium.

The minimum wage is what is called a price floor. For a price floor to be effective it must be above equilibrium. If it were below equilibrium it would be ineffective because businesses would be willing to pay more than the minimum wage – that is, equilibrium. Consider Alberta in 2007, the minimum wage was $8 an hour but companies were paying $9 – $10 an hour because that’s what the market warranted. Businesses would not have paid $8 an hour, because, according to Figure 2, at $8 an hour only 80 employees are willing to supply labour.  However, equilibrium is 150 employees, hence companies would be understaffed.
In Nova Scotia the minimum wage is above equilibrium. We know this because that’s what the majority of fast food restaurants and clothing retailers pay their employees. Once again, if minimum wage were below equilibrium companies would be forced to pay equilibrium or risk being understaffed so they must be paying minimum wage because that is what the law requires.
Above equilibrium we have the opposite problem as we did below equilibrium. Referring to Figure 3, at the new minimum wage of $8.60 we have 220 workers willing to supply labour. But the point at which $8.60 intersects the demand curve is only 80 employees; as a result 140 people that wanted to work won’t be able to find a job. In addition, of the 150 people that were working, 70 of them may now find themselves unemployed.
Does the minimum wage really protect our most vulnerable workers? No. It creates fewer jobs for those workers who need them the most and therefore offers no protection or guarantee.