Off the Record: The Big Mac Index and minimum wage

One of the world’s great economic indicators is The Economist’s Big Mac Index.

It’s published annually as a way of measuring the purchasing power parity (PPP) between world currencies. It uses the McDonald’s Big Mac as its basis because of its ubiquity in the global marketplace. Just in case you’re interested — according to the index the Canadian Dollar is undervalued by about 10 per cent.

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If you’re wondering what these “Mac-ro” economic indicators have to do with the local economy, think of it this way: a low Canadian dollar brings more U.S visitors, and they are gregarious fun-loving types who love to tip big. That puts at minimum tens if not hundreds of thousands of dollars into our pockets, tax free!

The happy part of this column is over because in case you missed it we have a new provincial goverment, a coalition between the NDP and their junior partner The Green Party. Politicians on the left (including Christy Clark) rarely miss an opportunity to court popularity by calling for higher minimum wages. This government is no exception. The NDP position is to increase the minimum wage to $15 an hour by the end of its first term, while The Green Party prefers the establishment of a basic income.

This policy announcement is timely, as the Seattle City Council’s commissioned report revealed some embarrassing statistics that highlighted the negative impact of their own minimum wage hikes. The report states: “the second wage increase to $13 reduced hours worked in low-wage jobs by around nine per cent, while hourly wages in such jobs increased by around three per cent. Consequently, total payroll fell for such jobs, implying that the minimum wage ordinance lowered low-wage employees’ earnings by an average of $125 per month in 2016.”

So, the minimum wage increase cost minimum wage earners $125.  

The people this affects most negatively are the young (what a shame they don’t vote). According to Statistics Canada close to 60 per cent of minimum wage workers were under the age of 25. The incidence of working at minimum wage among this age group was almost seven times higher than that of workers 25 and over. Some 38 per cent of teenagers 15 to 19 years of age worked for minimum wage and made up slightly more than 40 per cent of all minimum wage workers. If you take a snapshot of a minimum wage earner, they’re a high school kid who lives at home.

The minimum wage is temporary — it’s for training purposes and training is critical to the skills development of young employees. It increases their value to employers thus allowing them to earn a higher wage.
Policymakers should never underestimate the value of training. In their book Freakanomics authors Steven Levitt and Stephen Dubner illustrate the appeal of on-the-job training. In chapter three, “Why Do Drug Dealers Still Live with Their Moms?,” the authors provide a glimpse into the economics of a drug-dealing street gang. They compare the organizational structure of the gang to McDonald’s, with few executives prospering from the labour of thousands of low-wage earners.

The comparison is apt because most street dealers made less than minimum wage —while also bearing a one-in-four risk of death — and they lived at home with their moms.

Another knock on effect of minimum wage increases is that minimum wage jobs will simply disappear. In a 2016 Op-Ed for Forbes Magazine Ed Rensi, the former CEO of McDonald’s said, “demands for a much higher minimum wage would force businesses with small profit margins to replace full-service employees with costly investments in self-service alternatives.”

McDonald’s is now rolling out touch screen self-service kiosks across Canada and the U.S. — their Whistler location already has one.  

Increasing the minimum wage might give politicians the “warm and fuzzies” and temporarily raise their popularity ratings, but a look at the facts indicates the negative — and long term consequences of such a policy.

Ralph Forsyth is a local entrepreneur, ski instructor and bike guide. He served on Whistler council from 2005 to 2011. He’s been successfully pretending to know what he’s doing for over 30 years.

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