The Trickle Up Effect  


Minimum Wage and Living Wage

These two concepts are quite different in the public eye, but in general they come from the same philosophy, and have the same effects; if you give decent wages to the working poor, everybody profits. Society, business, and the poor themselves.

Minimum wage means anyone who is working for a living must get a specific and rather arbitrary amount, based on political expedience, much like a union contract. Living wage is “the hourly wage that two working parents with two young children must earn to meet their basic expenses (including rent, child care, food and transportation), once government taxes, credits, deductions and subsidies have been taken into account.” We are not surprised to discover that this amount, based on the realities of life, is considerably higher than the first total. In British Columbia, the Living Wage ranges from $17 to just over $20, depending on the city; the minimum wage, uniform over the province, is less than $11, in spite of a recent increase.

The Argument

The main battle line over both these sets of guidelines is drawn between businesses, who consider the effect on their own bottom lines, and social activists, who extol the benefits to society as a whole. And now to the economy as well.

Business Says:

The average small employer bases his fear of legislated pay minimums on the immediate effect on his income. He assumes that extra money paid to his workers means less money for himself. Businesses that are close to the failure line will cut workers to save money, provide even poorer service to customers and fail, putting employees out of work. Or they will raise prices, with similar effect. Employment levels will thus fall, prices will rise, and Armageddon is just around the corner.

It probably won’t do much good to remind all these free enterprise, law of the jungle proponents that, according to their philosophy, this is exactly what is supposed to happen. If your business can’t make a profit, you lose. Go work for someone else, and hope he’ll give you a reasonable salary.

The Socially Responsible Say:

When you look at the objections set forth by businessmen, they all rest on fears of what will happen to the individual business owner, who assumes that the same thing will happen to all business owners. But it doesn’t. We have been gradually introducing these concepts for enough years now that a reasonable amount of data is available to analyze. The interesting thing is that, when minimum wage or living wage has been introduced in various constituencies the sky did not fall. Contrary to popular fears in certain circles, employment rates did not go down. In fact, prices generally have not gone up, either, which is counter-intuitive, even for socially progressive thinkers such as this writer.

The Bottom Line

The statistics show that a certain number of marginal businesses will fail, but a whole lot of people will be better off, including the rest of society.

Why Does This Happen?

Because humanity is a complicated bunch of people, and humans react in a variety of ways to every situation. It turns out that if you raise a worker’s wages, he tends to have specific reactions. He works harder. He has a better attitude towards customers, fellow workers, and management. He changes jobs less often. And, in the long run, he spends more money, which boosts the economy.

It is an interesting question; when you increase the wages to people with not much money, where do they spend their extra? Certainly, some of them will waste it on entertainment. But who says entertainment is a waste? The hope is that they spend it on things they couldn’t afford but knew they needed, like better child and health care. Anyone who ever dealt with tooth decay knows that a few pennies saved on toothpaste now means a few thousand dollars in dental work down the road. Likewise, though harder to prove, the damage caused by poor supervision of a child can come back to haunt society for all of the child’s life, sometimes for the next few generations.

Money Flows Uphill

So the argument of the socially active is that extra money pumped into the food chain at the lower end actually trickles upward through society as children raised in better surroundings grow up to take a more productive role in society. They become better educated, have better attitudes, and do better in school. They do not have the resources to hide their money in offshore bank accounts. They do not buy expensive imported cars that create a trade deficit. They do not live in huge, wasteful mansions that could better house many people. They tend to holiday at home, keeping their money in the country.

In all, they tend to become better citizens than others we could mention. But we won’t generalize on negative stereotypes, because that’s cruel.


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