The divisive, confusing debate around minimum wage laws is continuing in 2018. As provincial minimum wages increase across the country, including here in Alberta, the proponents of the minimum wage increase claim to have scored a victory over poverty, while opponents see increased unemployment. It appears to me that the problem with the debate over minimum wage laws is similar to the problem with the (lack of) debate over man-made global warming in that emotional investment in an idea has clouded the analysis.
The claim that an increase in the minimum wage is a victory over poverty is somewhat questionable. According to Statistics Canada, approximately eight per cent of the Canadian workforce makes minimum wage, and in Alberta this is closer to two per cent. However, of the eight per cent of the Canadian workforce receiving minimum wage, nearly half of these individuals are in the 15-to-19-year-old age group. It is likely these individuals are not in their current jobs for lifetime, but rather they are temporarily in these positions while, for instance, going to school. This is consistent with the empirical evidence which shows that most of those who earn minimum wage in any one year earn more than the minimum wage within one or two years. This is not the group that we traditionally think of as the poor and this seems to be ignored by the proponents of minimum wages.
Having multiple conflicting results from studies on the economic effects of minimum wage laws is a common problem with empirical economics. In order to undertake a study on the effects of minimum wage laws, economists must use some sort of economic model. The problem here is that there is no unique model that is universally used to describe the economy. Therefore, researchers must choose a model they believe best describes the economy, and there is an enormous debate in this area.
One of the more sophisticated (i.e. complicated) models of the Canadian economy was devised by the Bank of Canada. In late 2017, the Bank of Canada published a study which purported that recent and planned increases in minimum wages across Canada will cause a loss of 60,000 jobs. This study led to a fair amount of unfocused debate. The CBC weighed in immediately, with an article titled, “Minimum Wage Hikes Could Cost Canada’s Economy 60,000 Jobs This Year.” However, typical of the tone of this debate, it appeared to me that the focus was not so much on potential job losses, but on the positive effect on workers’ income. This article concluded at one point that the recent increase in Ontario’s minimum wage will give $5,000 more per year to a full-time minimum wage earner and, “That’s real money in their pocket.” This is hardly what anyone should call thoughtful analysis.
For politicians, increases in minimum wages make them look good in the public eye, as if they are tackling the poverty problem. However wrong this may be is irrelevant because it gives them sympathy votes. Therefore, we are likely stuck with continued increases in minimum wages in the future.
Frank Atkins is a senior fellow at the Frontier Centre for Public Policy.