Let’s not forget the interests of low-income consumers

Low-cost retailers regularly receive negative media attention for not offering higher wages and better working conditions. Most recently, at a demonstration in Montreal in late August, Dollarama employees protested the retailer putting an end to its temporary 10 per cent coronavirus pay boost for in-store workers and $3 per hour boost for warehouse workers.

It’s an open question whether a given low-cost retailer pays its workers enough and provides good enough working conditions, but low turnover is a pretty good sign that things are not as bad as all that. In this instance, Dollarama says its wages are very competitive and its staff retention rate is stable.

Of course, every worker would welcome more pay and better conditions for the same work, while every employer would like to get the most out of employees at the lowest cost. What decides the matter, in the absence of government interference, is market competition.

From the workers’ point of view, what other jobs are available? From the employers’ point of view, what other employees could be hired? If a company systematically underpays its workers, they are free to take their labour elsewhere; if workers underperform, a company may invite them to.

What is not an open question — yet is almost never addressed in media stories about low-cost retailers — is the benefits low-income earners derive as consumers from being able to shop for affordable goods.

A firm like Dollarama or Walmart provides much-needed goods to low-income customers, for whom access to low prices is absolutely crucial. While the media focus almost exclusively on these companies as employers, the contribution to the marketplace of low-cost providers of goods has very strong societal value. All consumers of modest means benefit tremendously from being able to stretch each dollar of income further than they could if their shopping options were more restricted.

A key part of the business models of low-cost retailers, though, is hiring less-skilled workers for modest pay. If these companies succumbed to pressure from employees or unions to raise wages substantially — or if they were forced to pay more by dramatic increases in the legislated minimum wage — the business model would fall apart, and all shoppers looking for a bargain would be left out in the cold. To claim to be on the side of little guy, but then ignore the little guy as consumer, is short-sighted at best.

Nor would removing the bottom rungs of the employment ladder through aggressive minimum-wage hikes be very helpful. On the contrary, low-skilled workers and new immigrants who need to get some work experience or improve their language skills before moving on to better things would then find it harder to do so. And move on they do, as Canada has substantial social mobility. One study found that 83 per cent of Canadians in the bottom 20 per cent of income earners in 1990 had moved up to a higher income category 10 years later.

A more useful strategy would be to reduce corporate taxes so that retailers and other employers could afford to raise wages. If this sounds farfetched, it is precisely what Walmart did in the United States in response to tax cuts there. In January 2018, the company boosted the minimum wage for its U.S. employees to $11 an hour, paid out bonuses of up to $1,000, and expanded parental leave benefits, as well. It specifically credited the recent corporate tax rate cut from 35 per cent to 21 per cent for enabling the move, a statement which is supported by both economic theory and empirical evidence.

It is laudable to want to help the less fortunate. But making things more difficult for those who are already providing them with accessible jobs and affordable goods is hardly the way to go about it.

Michel Kelly-Gagnon is President and CEO of the MEI. The views reflected in this op-ed are his own.

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