Posts Tagged ‘economics’

The minimum wage in Ontario jumped from $11.60 per hour to $14.00 as of January 1st 2018. Already, there are reports that small businesses will struggle with this jump. This will lead either to increased demands from the workers to generate the productivity increases to compensate, or layoffs and hiring restrictions, as businesses struggle with the increased labour costs without concomittent productivity increases.

Wages are the price of labour. All other factors remaining equal, a mandated minimum wage rise increases the price of unskilled labour, which lowers the demand for it. In other words, less people will be making a bit more money, but it will likely leave many unskilled or under skilled workers in the cold. These are the people normally hired by many small businesses and they can’t afford the pay rise. They will have to lay off workers, hire less workers, and/or do the work themselves.

Additionally, this affects mostly young workers. Statscan’s Labour Force Survey 2015 shows that two thirds of of men earning less than 15K per year (a proxy for minimum wage employment) are in the 15-24 years-old age category. For women, it’s three quarters. I don’t know what explains the disparity. In any case, you can see it here (incidentally reported on an apparently left-wing website):…/who-earns…/ (see last table near end of article).

The article notes that young workers deserve “fair” wages too. My question then is, by what standard? If by government fiat, that only raises the price of labour without necessarily generating increased productivity. If by the free market, then the prices reflect the real marginal productivity of the employees that are hired.

The Bank of Canada is predicting that there could be up to 60,000 job losses by 2019 because of increases to minimum wages. TD Bank is predicting 90,000 job losses due to the same cause. These are obviously just forecasts, so we have to take them with a grain of salt. But the reality is that we can’t ignore basic economics by legislating minimum wages. Businesses pay people what they must in order to survive and thrive. But if they can’t generate sufficient profit by doing so, they have three options:

  1. Hire less people;
  2. Improve their productivity (which requires investment in human and intellectual capital development, as well as physical capital); or
  3. Go out of business or go into a different line of business with their existing capital (which may or may not be convertible quickly.

© 2018 Richard Martin. Sharing and reproduction permitted only for non-commercial use.

A few weeks ago I was having lunch with one of the most successful real estate brokers in Canada. At one point, she asked me what I thought of the economy. My instinctive answer was that there is no such thing as “the economy.”

What do I mean by this? Simply that we are fed on a day to day basis by the media, financial advisors, politicians, business leaders, etc., that the economy is growing, or shrinking, or whatever else economies are supposed to be doing. This attitude discounts the particular experiences and realities of individuals and organizations, the fact that for every person and business in a country, economics is a concrete concept. GDP, employment and interest figures represent a highly abstract averaging of economic and social activity; each person and organization has its own particular growth figures, interest rate, and supply and demand curves.

I have come to appreciate that each one of us is our own economy. In Canada there is something like 34 million economies. Add in businesses, corporations, associations, various levels of government, including municipalities and government agencies, and there are millions more. In the US there are probably at least half a billion economies by that measure, and in the world as a whole, perhaps 20 or 30 billion, if not many more.

As an example, Sears Canada has just announced the selloff of the company’s flagship location at Eaton Centre in downtown Toronto, in addition to many other prime real estate locations across the country. The company has been struggling for years in Canada and the US, while other retailers have been expanding and making a killing. Sears is in full retreat in Canada, but Target is expanding here. Two similar companies, two completely different economic realities. There may be some general retail trend in Canada, but how should we interpret it in the face of such different micro-economic realities? The same applies to every specific micro-economy, whether an individual, a small business, or a large corporation.

Gross economic measures are just that—gross averages and metrics that subsume millions of subtle factors, inputs, and outputs that impact on individuals and groups working to earn a living, generate wealth, improve their clients’ conditions, and deliver value. These metrics may be useful for macro-economic management at the political level, but do they really have meaning for people and executives trying to make their way in the world?

One of the limitations of macro-economic measures is that they become a ready excuse for under-performance and lack of productivity, innovation, and customer satisfaction. If someone can’t meet their sales targets, it’s because the economy has slowed, or people aren’t spending, or government policies are hindering growth. These all may be true to some extent, but the overall trend in an economy is just one factor to be considered among many.

The average person and business has much more control over their economic conditions than is conventionally recognized. Employees and job seekers must be willing to upgrade their skills to remain relevant in the job market. Businesses and entrepreneurs must be willing to innovate and take prudent risks to change their products and services, to reach out to new customers and to develop leaner and more effective processes and systems.

Each company and person has its specific credit rating, interest rate, and risk level. We all have different and constantly morphing opportunities and threats. One size does not fit all. We have to be aware of our particular situation and create plans and actions that will help us meet our goals. It’s not enough to blame “the economy,” because in that case you have to look at yourself in the mirror and ask yourself if you’re doing everything possible to create demand for your services and products, and to be economically valuable.

Richard Martin is a consultant, speaker, and executive coach. He brings his military and business leadership and management experience to bear for executives and organizations seeking to exploit change, maximize opportunity, and minimize risk.

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It’s a fallacy to think that war can be prevented by having intertwined economies. If it were, there would be no civil wars such as what happened in Yugoslavia in the 1990s. If anything, it can create even more animosity between countries because it can provide an excuse to claim inequality and victimhood, both good excuses for going to war.

© 2010 Richard Martin. Reproduction and quotes authorized with proper attribution.