It is easy to sympathize with 33-year-old Acsana Fernando. Since immigrating to Canada from Bangladesh as a refuge in 2002, she has struggled to find her footing. Bouncing from job to job trying to eke out a living, Ms. Fernando now works at a group home and earns the Ontario minimum wage of $10.25 an hour.
After she pays taxes she is lucky to take home somewhere between $1,100 and $1,300 per month, and that money goes quickly. After she pays rent for her subsidized apartment and covers groceries, Ms. Fernando doesn´t even have enough left over to buy a monthly bus pass. Instead she opts for the pricier pay-as-you-go option, something which leaves her economizing on her bus rides more than she otherwise would.
Life is tough now, but optimistically she notes that it is better than it was a few short years ago. She needed $33,000 to sponsor her father to come to Canada, and did so by buying a second-hand car to sleep in, thus reducing both her transportation and housing bills. Worst of all, if she had remained in Bangladesh, she would probably have been married to a man she didn´t love who had three wives already.
I couldn´t imagine a worst case scenario for a Canadian than what Acsana Fernando has to go through on a daily basis, but I have to.
One of the great contributions of the 19th century French economist Frédéric Bastiat is that the single best test of a good economist is an ability to see past the obvious and apparent effects of an action in order to see its shielded or unseen effects. In few places is this skill more important than when analyzing the minimum wage.
Price floors, like a minimum wage, have the effect of creating an excess supply of a good. As the price is set above the market-clearing level the result of the reduction in demand for the good is exacerbated by the increase in supply – too many people want to sell the good in question, and not enough people want to buy it. A surplus develops.
When price floors are enacted on specific goods, the result is typically surplus goods piling up in a warehouse. As part of Europe´s “Common Agriculture Policy”, price floors on many everyday foodstuffs created “butter mountains” and “wine lakes.” While these types of surpluses might seem like just another tasty treat to come out of Europe, when it comes to labour markets they should leave a bad taste in our mouths. As the quantity supplied increases while that demanded decreases due to a minimum wage, the surplus in question is unemployed masses.
While it is easy to lament that those earning minimum wage aren´t earning enough, it is difficult to justify the fact that some people aren´t learning anything because of the law.
There is no doubt that Acsana Fernando has a tough life trying to support her family on minimum wage, but at least she has a job. There are a little over 1.3 million Canadians who are unemployed today. At least some of them don´t have a job because of the minimum wage. It´s easy to sympathize with minimum wage earners´ lives, like Ascana Fernando´s, because we can see them, but the real victims are those unemployed folk that you never see.
If the press wants to raise support for an increased minimum wage, it could at least give us a story about a real victim of the law. Unfortunately, showing all those forced out of work because of the minimum wage might just be enough to get it repealed and put an end to the need for these types of heart-wrenching stories.
(This article was originally posted at the Ludwig von Mises Institute of Canada.)