A gentle voice of dissent in Alberta

On Tuesday, the C.D. Howe Institute issued a report by University of Alberta economist Joseph Marchand on the province’s march toward a $15-an-hour minimum wage, which is in progress and is supposed to conclude in 2018. The report is lightly critical of the Alberta New Democrats’ approach, and suggests that there might be negative employment effects in the order of 25,000 jobs.

Naturally, the Institute was immediately castigated as a predatory right-wing intellectual conspiracy, and Marchand attacked as some kind of unfeeling neocon brute.

This is pretty funny if you are an ordinary consumer of the C.D. Howe Institute’s reports, which tend to be about as “right-wing” as the median member of the economics profession, and no more. The Institute’s general purpose is to spritz the occasional dose of data and up-to-the-minute economic thought into the Canadian air, usually in a low-key way. As for Marchand, he’s a labour economist who specializes in income distributions and poverty, with a specialty in local booms. It would be kind of surprising if someone with his background suddenly came out as a conservative hatchet man.

Well, he doesn’t. The Marchand report is a very gentle survey of the theory and data on minimum wage increases. The theory says that an increase in the minimum wage can, in general, be expected to lead employers to use less labour, leading to disemployment effects. But, then again, maybe not. Where buyers of labour are few, and they have the power to collude or conspire against sellers, an increase in the legally mandated minimum wage can have no effect on the hiring of labour: it might even increase it.

As so often happens, we find it difficult to judge a policy on the basis of first principles and back-of-theenvelope calculations alone. (Do we need a new idiom for “back of the envelope”? I don’t find myself handling envelopes much in 2017.)

Minimum wages, Marchand suggests, have to be judged locally, with the distinct characteristics of each labour market taken into account. As he points out in a footnote, even strong supporters of a $15 minimum wage would be reluctant to apply it as a panacea to the whole of a diverse country like the United States. Alberta labour markets are still in a relative funk right now, so it is difficult to tell whether the partial increases already undertaken are responsible for job losses that might otherwise be attributed to low oil prices.

If Alberta NDP supporters are uncomfortable with the report, it might be because of certain broad facts about the minimum wage hike, facts of which Marchand rudely reminds the reader. The $15 figure was not chosen on the basis of any particular evidence: it is some kind of totem that became tulipomanically fashionable with left-wing local governments across the continent (in the local currency) at the same time. Where Alberta is different from other Fifteen-DollarsOr-Fight adopters is that it is phasing in the $15 floor faster, racing ahead of other provinces and states even though the original minimum wage level was low. (Ontario has caught the $15 fever but will end up at that level three months behind.)

The government left itself no provision for any delay in the hike if there were a recession in Alberta, which happened more or less the moment the NDP was elected. And it imposed the increase provincewide, all at once, instead of choosing a ripple-like rollout, moving from dense urban areas out to the more bucolic ones — which is how New York State is implementing its US$15 minimum wage.

Marchand’s view is that the smart approach for a resource-dependent polity like Alberta would be to wait for a spike in prices, introducing a higher minimum wage at a time when sellers of labour had a lot of leverage anyway and would be in an optimum position to capture the benefits. By proceeding with the hike immediately, the new NDP government made sure that any disemployment effects would probably be maximized.

Moreover, the $15 minimum wage appeared in the NDP platform in tandem with a job-creation tax credit that could have helped mitigate job losses, but the credit was both expensive and temporary, and it got deep-sixed in spring 2016. All of this is true whether or not you accept Marchand’s estimate of 25,000 job losses — which represents a hasty, unrigorous, very approximate stab at the middle of a wide range of possible outcomes, and which inevitably became the headline anyway.

Some of you are reading this and hooting “How would YOU like to live on $13.60 an hour, jerkface?” But that is not the point, double jerkface. The point is that some of those people, at the margin, might be told to go home and not come back if their business has to pay them $15. And some of those businesses, at the margin, might close. Everybody understands, if they think about it for 10 seconds, that a minimum wage is not a magic wand for making everybody better off: otherwise, why not make the minimum $115 instead of $15? In this regard, Marchand’s report is merely a careful recitation of the bleeding obvious.