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Retail prices: The U.S. vs. Canada

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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.

This article was first posted on The Progressive Economics Forum.

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