Should Minimum Wage Be Aged Adjusted?

canada-us-minumum-wage-map-july-2018In many parts of Canada and United States there is a drive to a minimum wage of $15/hour.  Some places like San Francisco and Alberta have already at that historic rate.  While all but the most ardent on the political right have little issue with very existence of a minimum wage, the question has been what should it the minimum wage be?

You can click the map to the right to see the minimum wages that are being paid in the US and Canada as of July 2018.

The two ends of the minimum wage spectrum are:

  • High: The minimum wage should be the lowest rate at which a full time worker needs to be above the poverty line
  • Low: The minimum wage should be the lowest rate at which any worker can be paid without falling into the ‘abuse’ or ‘slave labour’ category

One the one side, the problems caused by a low minimum are:

  • increased severe poverty
  • reduction in the ability of students to earn enough money to pay tuition and living expenses that enable them to earn more money in higher skill jobs
  • increased incidence of violence and suicide
  • increased need for people to have two or three jobs

On the other side, the problems caused by a high minimum wage are:

  • reduced employment as companies substitute mechanization or technology for human labour
  • reduced benefits (i.e. Dental Care in Canada, Health care in the US) as employers struggle to minimize costs
  • inflation caused by employers raising prices to pay for higher wages
  • reduced employee satisfaction as the wage difference between experienced high paid staff and new lower skill staff narrows
  • reduced job opportunities for young people to enter the labour market and for old people to semi-retire

We are not going to solve that debate here but we can suggest a logical improvement.  Age Adjusted Minimum Wages allow the very young and the very old to be paid less than the “full” minimum wage.  This creates opportunities for young people to enter the labour market often by starting out performing skill tasks, like cleaning and storage handling.

If Governments set a rate “full minimum wage” age of between 20 and 60 years old, it would be both politically and mechanically easy to set lower rates for those outside of the ages of 20 to 60.  For example, if we take a rate of $15/hour we could set the minimum wage as follows:

Age Minimum Wage Discount Minimum Wage Rate
<16 50% $7.50
16 60% $9.00
17 70% $10.50
18 80% $12.00
19 90% $13.50
20-60 100% $15.00
60-65 90% $13.50
65-70 80% $12.00
>70 70% $10.50

Tasks that require virtually no skill can be completed by the very young (or for that matter, the very old) that just want a job to keep themselves active.  Age Adjusted Minimum wages positively affect all of the problems caused by excessively low or excessively high minimum wages including:

  • Encourage employers to bring in new young staff and give them a start to building their skills
  • Reduce the need for consumer price increases
  • Allow for a high base minimum wage for those trying to ‘live’ on it
  • Allow for wage delta’s between the inexperienced and their more productive / experienced staff

We can argue over what the base rate and what the age ranges should be, but the concept of age adjusted minimum wage makes a lot of sense.  Perhaps the base minimum wage should be lower and the ages for a lower rate should start later and end times:

Age Minimum Wage Discount Minimum Wage Rate @$12/hour 
<18 85% $10.20
19 90% $10.80
20 95% $11.40
21-65 100% $12.00
>65 90% $10.80

How much is it worth to have some say “Welcome To Walmart”, “Can I see your Costco bill please”, or to have them clean tables at McDonald’s?

Age Adjusted Minimum Wages are better than a flat minimum wages and can be (should be) very clean systems that are:

  1. easy to implement
  2. easy to audit and verify
  3. easy for staff young and old to understand
  4. easy to justify

There are some real world examples of Age Adjusted Minimum Wages including Australia’s “National Minimum Wage Award” system.  As of July 2018 the Australian minimum wage looks like:

Age Minimum Wage Discount Minimum Wage Rate @$18.93/hour 
<16 37% $6.97
16 47% $8.95
17 58% $10.94
18 68% $12.93
19 83% $15.61
20 98% $18.49
21 100% $18.93

The problem with the Australian system is that it is overly complex.  It has minimum wage calculations based on the industry, your age, trainee vs regular staff, specific occupation, experience and full time, part time or casual work.  It is so complex the Australian Government provides THIS 11 step “PAY AND CONDITIONS TOOL” to figure out your minimum wage.  Such complexity is unnecessary, confusing, and ripe for abuse by employers.

As you can see in the tables above, about 25% of minimum wage workers in Canada, the United States and Australia are under the age of 21 or over the age of 65.  The discounts to the minimum wage for that group can be used to keep price low or pay ‘working age’ staff more… or both.

An Age Adjusted Minimum Wage is a win win win:

  • Win for politicians: an agreeable progressive partial solution to high minimum wage demands
  • Win for business: allows them to keep most of their current workers and reduce costs
  • Win for workers : allows young and old entry points into low end jobs, while providing ‘working age’ staff with more upward wage potential

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