Thoughts and ideas on people and technology.
January 27, 2025
Minimum wage has been a hot topic as far back as I can remember. If you’re an employer it can feel like government needlessly meddling in the free market, while for employees it feels like its never high enough to make a difference. This is especially true where oversaturated labour markets are combined with high costs of living (HCOL) (which is pretty much everywhere at this point). Workers may need 2 or even 3 minimum wage jobs just to cover food, shelter, and transport in these areas, and would probably love to see minimum wage lifted. Employers in less-dense areas are faced with the opposite problem; even if they advertise pay “above minimum wage”, acquiring and keeping entry-level staff in HCOL areas is a constant battle. In this case, my recommendation is to localize your minimum wage.
In Canada most enforceable minimum wages are set by the provinces. Federal minimums apply to federal government employees (and some federally regulated industries). The problem with this is the sometimes broad disparities in cost of living (COL) between municipalities, especially between urban and rural. I’ve seen rent differences from 50% to 100% for comparable apartments. Applying the same minimum wage isn’t going to have the effect it’s meant to. If your staff can’t afford rent, they’re going to constantly be searching for something better, leading to high turnover. They’ll be forced into mercenary behaviours (see my previous post on “True Believers & Mercenaries”). Official minimum wages also lag behind inflation, but that’s a whole separate discussion (see my “What is Money?” series, starting with “Part 1 - What is Money?"). On the flip-side, having a localized minimum wage allows your employees to stay settled where they are and gives them the freedom to be True Believers. You can work it directly into your job postings too; advertising wages that are based on local COL will have your inbox flooded with applications, allowing you to choose from the best instead of having to settle for the desperate. Let’s get into how to go about localizing your minimum wage.
First, look at a map and ponder how far most would be willing to commute to your workplace. Draw a rough circle with that as the radius. Everywhere inside this circle is fair game for everything to follow. Next, find some low-rent but livable apartments inside the circle and look up their rates. This will be your rent figure.
Transport is next. We’re going to use fuel cost as a “close enough” placeholder as actual costs will vary greatly between individuals. We’re also going to pick a “close enough” fuel efficiency for the same reason. I’ve chosen 8.5L/100KM, but you can adjust this. For example, full-size pickups may be more popular among your staff so that number may need to go up. Look up the average fuel prices for the last few months at retail stations within the circle, and the average working days per month for your staff. Now plug all of these numbers into the following formula and calculate. This will give you the monthly fuel cost:
(fuel price x 8.5 x (circle radius KM x 2) / 100) x working days
Lastly, groceries. Like transport, we’re aiming for a “close enough” placeholder. You can substitute any items and volumes you like, but these are my recommendation to get an average monthly cost for an average minimum wage worker plus 1 dependant. Go to a generic grocery store within the circle and get the regular (non-sale) prices of the following:
3 x 3lb/1.36kg apples (averaged or middle price)
5 x single Long English cucumber
1 x 10lb bag of potatoes
2 x 4L 2% milk
4 x 1 dozen large eggs
2 x 600g block of cheese (average or middle price)
6 x loaf of brown or whole grain bakery bread (average or middle price)
5 x 1lb/454g lean ground beef
1 x 4kg box frozen chicken breasts
1 x 3.5lb/1.6kg bag of jasmine rice.
Now that you have totals for the expenses, put those numbers into the following formula. This will give you total monthly living expenses:
((rent + groceries) / 0.45) + fuel
Put that total into the following formula for the monthly paycheque total, pre-deductions. Insert current federal and provincial income tax rates for your jurisdiction:
expenses / (1 - (provincial tax rate as decimal + federal tax rate as decimal + 0.05)
With this final total you can divide by monthly working hours for an hourly wage, or multiply by 12 for an annual salary. I’ll provide an example of all of this at the bottom of the article.
After crunching these numbers you may have concluded that paying a localized minimum wage would eat into your profits. This may be the case initially, but lowering turnover rates and increasing the quality of your hires will save you money long-term. However, if it raises costs so high that the business would become unprofitable, you may need to consider that the business isn’t viable. Being dependant on employees willing to work for below the cost of living in your area will eventually end the business regardless, and I would argue is immoral.
Want help localizing your minimum wage? You can find us at scalebright.ca.
Sample localized minimum wage calculation:
Rent: $1,200
Fuel cost: ((1.40 x 8.5 x (9.4 x 2) / 100) x 20 = $44.75
Groceries: $229.46
Apples: 23.97
Cucumbers: 14.95
Potatoes: 8.99
Milk: 11.90
Eggs: 17.40
Cheese: 20.58
Bread: 23.94
Ground beef: 42.45
Chicken breasts: 49.99
Rice: 15.29
Total expenses: ((1200 + 229.46) / 0.45) + 44.75 = $3,221.33
Total monthly paycheque: 3221.33 / (1 - (0.10 + 0.15 + 0.05) = $4,601.90
Hourly: 4601.90 / 160 = $28.76
Annual salary: 4601.90 x 12 = $55,222.80
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