Memorandum to: Professor Alan Kaplan from: Muhammad Ali (500165498) subject: Analysis of “Using free markets to lift people out of poverty” date: cc:
Muhammad Ali

Imagine a water tap that is leaking drops of water on to a dry surface. In order to keep the space below the leak from getting wet, a pitcher may be placed under the tap to collect the leaking water. That pitcher once full would be emptied in a sink and then placed back under the tap to collect more leaking water. The point is that even though, the dry surface is being kept from getting wet, it does not take care of the leaking tap problem. To solve the problem, the tap may be repaired at the core or replaced with a new one altogether. In the article, “Using free markets to lift people out of poverty”, columnist Jesse Kline argues a similar point about the Ontario Liberal government’s push to increase the minimum wage up to $11.00 per hour from $10.25 per hour.

Kline claims that an increase in the minimum wage is not the solution. According to him, a minimum wage increase is in fact detrimental for the economy because it increases the poverty stricken population and drives communities further below the poverty line. Instead, he argues that progress can be made on this front by shifting the focus from the wage increase to more promising alternatives, which will prove to be beneficial for low-income families. Andrew Coyne writes, “…give them money. Only do so directly, using the tax transfer system, rather than fixing wages and hoping some of it reaches them.” (Coyne, 2014). Furthermore, factors, such as, easing pressure on the supply management front, trade barriers, import duties, and a change in monetary policy with respect to interest rates can benefit the impoverished people far more than an increase of minimum wage is able to.

Although, a small group of people does benefit from the wage increase, it comes at the expense of many other tax payers, those who are laid off, and those still who are unable to find a job in the first place. I find myself in agreement with the author’s argument that the job market is much like a hot commodity. Based on the law of supply and demand, if the price of hired labor increases, the demand for it will decrease, and in turn there will be an excess amount of supply, meaning the unemployment rate will steadily climb. (Ehrbar, 2014). In light of an increase in labor cost, employers would be less willing to hire additional staff, and more willing to optimize their labor needs. Consequentially, the increase in poverty would be a direct result of less hiring, more layoffs, and reduced hours of pre-existing workers. The push for the increase in minimum wage by the politicians is further scrutinized as a political ploy to gain voting support from the public. (Cain, 2014). It does not however, address the umbrella issue it is intended to remedy. Perhaps rightfully so, from the stand point of an individual, the increase certainly looks bright and shiny. Unfortunately, this perception is based up on an individual’s self-interest or the interest of a group of people, which does not encompass the welfare of society as a whole. (Neumark & Wascher, 2008, p 288). The individual is motivated by the possibility of getting a small slice of the pie in the form of a wage increase. Collectively however, the aerial view of the penurious group offers a much more inferential story.

According to a fall 2013 research report published by the Fraser Institute, a 10% increase in the minimum wage would result in a 4% to 6% increase in the underprivileged population in question. (Veldhuis & Karabegovr, 2011). Moreover, Statistics Canada reports that nearly 60% of the minimum wage earners are aged between 15 and 24 years old. Out of that population, some 86% live at home with their families. (Labor Force Survey, 2005, pg. 18 – 23). This means that the increase in minimum wage will benefit a large group of people whose incomes are already supplemented