Are You Prepared to Work 10 Hour Days for $2.50 Per Hour?

This term I’m teaching Industrial Relations, and there was a nice piece in the Toronto Star back in July to get us going.  The story described how some new immigrants to Canada are working 10 hour days and earning about $2.50 per hour  for sleazy employers in Toronto’s Chinatown area. Some also paid the employers a fee for the privilege of this employment. Is this a social problem in need of state intervention, or just the outcome of free bargaining between employers and employees?
We have a minimum wage in Ontario (it’s $10.25 per hour this year), and  $2.50 is obviously much lower

than that standard.   So the first lesson in this story is that employers do not always obey employment laws. In fact, we know from studies that employment standards laws in particular have a high level of non-compliance in Canada.  As Harry Arthurs says, “law is what law does”.  That reminds us that what matters is how actors respond to legal signals, not what the law “on the books” says.   The fact that we have a minimum wage doesn’t mean that the employers always pay it.  There is an enforcement and compliance problem.
But neo-classical economists are usually against the minimum wage (and laws regulating hours of work, human rights, et cetera too)  in any event.  State intervention in the “free” negotiation of employment contract is said to distort the natural equilibrium of the labour market, causing inefficiencies that actually harm both the employer and the employee.  If employees in Chinatown are prepared to work 10 hour days for $2.50 per hour, and the employer can attract sufficient workers at that rate, then that is the proper wage rate.  If the state tries to interject by ordering the employer to pay $10.25 per hour, the employer will just hire fewer workers (causing unemployment), or pass along the added cost to consumers (raising the cost of living), or they will just ignore the law altogether (as in this example).  In the words of  neo-classical law and economics professor Richard Epstein:

The minimum wage law, with its redistributive impulse, seeks to impose costs on one side of the relationship but ignores the private responses to the challenge, and so ends up hurting both sides. (Simple Rules for a Complex World, p. 145)

You can also watch the Guru of this world view, Milton Friedman, explain why the minimum wage is evil in this You-Tube video. The fact that new immigrants to Toronto likely don’t speak English, have no knowledge of the legal system, and are desperate for any source of income to feed themselves is assumed by people like Epstein not to pose a problem for the legal model they espouse.  In his view, employers like this who are not nice to their employees will be driven out of business by the forces of the market, since they will not be able to keep good workers, and word will get out that they are bad employers.  Soon, they will not be able to attract any decent workers, and their inefficiencies will drive them out of business.
Canadian governments have largely rejected these arguments.  Governments of all political stripes have historically supported employment regulation to “protect workers” from the harsh realities of the free labour market in which the employer so obviously holds the upper hand.  Governments have seen this imbalance of bargaining power as a social problem in need of a legal response.  That response has come in two forms:

(1) employment standards regulations (like employment standards, human rights codes, pay equity, occupational health and safety, workers compensation, etc); and

(2) collective bargaining laws that establish a system that allows workers to join together and bargain with their employers as a group so as to create a more level bargaining ground.

Industrial relations is the study of how these rules interact with labour markets and the industrial relations “actors” (employees, employers, unions, and the state) to produce  employment-related outcomes.  As we will see in my course, we are dealing with a virtual spider’s web of balancing,  tensions, and conflicts.  When we pull on one string, it provokes a chain reaction of cause and effects throughout the web.  That’s what makes the study of industrial relations so interesting.

• If we think $2.50 per hour is “too low”, how can we ensure employers pay more?  The mininum wage law isn’t working.
• Should we just repeal the minimum wage law, and let the markets dictate?
• Should we change how our minimum wage laws work, to try and ensure better compliance? (I have argued we should, by making it easier for workers to unionize when their employer violates the employment standards act. Do you agree with that idea?)
• Should we encourage those workers to unionize so they have professional help and collective power in their negotiations?   If so, how do we do that?
• What impact will unionization have on the workplace?

These are the sorts of questions we will explore as we begin our foray into the study of industrial relations