I saw quite a lot of media coverage of a BMO report that Canadian retail prices are 20% higher than in the U.S. despite exchange rate parity. There were allegations of price gouging and references to the allegedly much more intensely competitive U.S. retail environment.
I hesitate somewhat to say so in case the argument is misused, but there are good and defensible reasons why the retail cost structure is higher in Canada.
I recently posted a plug for a Caledon study showing that the average minimum wage in Canada has increased fairly significantly in recent years to $9.31 per hour, and now stands just 92 cents per hour below its mid 1970s peak. (Note that the numbers in their study have been corrected since my original post.)
By contrast, this EPI note shows that the U.S. federal minimum wage -- covering all workers engaged in interstate commerce -- is well below its peak and stood at just $6.54 per hour in 2009. A few states have somewhat higher minimum wages. They are $7.25 per hour in New York state which is very much on the high side compared to $10.25 per hour in Ontario.
Given that retail wages are often set at or somewhat above the minimum wage, and given that our dollar is now significantly above parity, there is likely a big gap in retail labour costs. Wal-Mart may well be paying 50% more in Ottawa than in Northern New York State where many of my neighbours go in search of "bargains."
I think higher minimum wages are a good thing. Certainly they are a good thing for lower-paid Canadian workers. And they generally do not have much of a competitive impact in traded sectors as opposed to domestic services.
But, in fairness, let us limit the populist impulse to scream about price gouging Canadian retailers just because we pay a bit more at the cash than our U.S. neighbours.
Advertising
This article was first posted on The Progressive Economics Forum.
Using the minimum wage differential between the USA and Canada to explain the difference in prices between Canada and the USA is simplistic; and wrong.
The difference in price between Toronto and Buffalo, for a higher end Japanese car, is $10,000. The $10,000 dollar lower price in Buffalo cannot be accounted by minimum wage standards!
Just came back from LA. For example, the regular price for a box of Haagen Dazs ice cream bars is $3.49 in LA. The reular price in Toronto at Langos is $7.49! The near 50% lower price in LA cannot be accounted by minimum wage standards!
The truth is canadians are pushovers - we are conflict avoiders, we are a gullible lot while americans are complainers and resisters.
Oh, pity the poor Canadian retail sector, burdened with high minimum wage costs, and forced to charge so much more for consumer goods than their US counterparts!
What horseshit!
The Canadian retail industry is one of the worst-managed and least efficient sectors of the economy. They have gotten away for years with passing on the cost of that inefficiency and incompetence to consumers, because we were conditioned to expect higher prices. Now that the Canadian dollar is above the US buck, we can shed the illusion that exchange rates are responsible for higher prices.
Why does rabble feel it necessary to publish an apologia for price-gouging by Canadian retailers?
ETA: Read page 42 of that Caledon Institute study that Jackson links to, and take a look at Figure 45. Minimum wages in terms of real puchasing power are quite similar between the provinces of Canada and states of the USA.