By Janet Lane
In the Globe and Mail

 

Alberta’s $1 raise in the minimum wage to $11.20 an hour in October has been welcomed by employees and pretty much absorbed by the employers who were affected. Perhaps the next dollar an hour will also be readily absorbed as the province moves toward a $15-an-hour minimum wage.

Ultimately, however, the relatively rapid increase is likely to cause problems. The move from $10.20 to $15 an hour by 2018 is a 47-per-cent increase over three years. This is a large increase in a major cost of production.

My initial response to the government’s new rules was that perhaps this increase in the minimum wage could be managed by increasing prices. After all, what’s another dime per cup of coffee? However, one savvy yet compassionate fast-food franchisee told me that “if there was any room for my company to move prices, believe me, Janet, we would have already done so!” It makes sense – what corporation as well-managed, and as margin-sensitive, as one of the world’s largest fast-food chains would leave money on the table?

This same businessman has impressed me repeatedly with his understanding both of business and the people who help him to make his living. Last month, he hired six new people and is updating his stores. The average wage for non-salaried employees is $14.40 an hour. But he does not pay that wage to the six 14-year-olds he employs. They get 20 cents above minimum wage to start, and receive small raises every six months after that.

His concern is that as these increases in wages become harder for employers to absorb, the fallout will hurt teenagers the most. Today’s typical teen has a lot to learn about how to present themselves in the work force. Their first job is the place where teens learn how to show up for work on time and ready to work, how to work in teams, how to respond to bosses, how to smile at customers, how to move quickly and efficiently – you get the point.

It’s a lot to learn, and employers of young people know that these things take time. If an employer’s choice is between a 20-year-old who has already learned a lot of this or a 14-year-old who is just starting along the learning curve (and at $15 an hour, there will be more 20-year-olds willing to take the job), why would the employer hire the “kid”?

One solution is to have different rates of pay for different groups. Britain, for instance, has recently decided to impose a system of both minimum and living wages, based on age. Starting in April, 2016, people under 25 will be subject to the minimum wages, and those 25 and over must be paid at least the new living wage. Minimum wages range from £3.87 ($8) for people under 18, up to £6.70 for people over 21. When the change takes effect next year, workers 25 and older will earn at least a living wage of £7.20 an hour, and this will rise to over £9 by 2020.

We should look at the idea of allowing employers who are training younger workers, or indeed workers of any age – who are just entering the work force and learning all those so-called soft skills that employers need so desperately – to pay those trainees less than the new and higher minimum wages while those workers are in training.

Bringing the minimum wage in Alberta closer to a living wage is a step in the right direction. Finding ways to help employers adjust to this cost increase, without having to cut jobs, will make it more likely that employees who need the raise most will actually benefit from it.

Janet Lane is the director of the Centre for Human Capital Policy at the Canada West Foundation.