Man­u­fac­tur­ing un­em­ploy­ment

Higher min­i­mum wage is bad pol­icy for At­lantic Canada

The Guardian (Charlottetown) - - OPINION - BY MATTHEW LAU AND MARCO NAVARRO-GÉNIE Matthew Lau is an in­de­pen­dent eco­nomics writer and con­trib­u­tor to the Fi­nan­cial Post. Marco Navarro-Génie is pres­i­dent and CEO of the At­lantic In­sti­tute for Mar­ket Stud­ies.

High un­em­ploy­ment in At­lantic Canada is a long­stand­ing prob­lem. For over four decades, un­em­ploy­ment rates in the At­lantic Prov­ince have con­sis­tently ex­ceeded the na­tional rate. It is there­fore crit­i­cal for the prov­inces to re­duce bar­ri­ers to work.

Yet, gov­ern­ments do the op­po­site when they raise the leg­is­lated min­i­mum wage, as all four prov­inces did last April. With each in­crease, more peo­ple be­come un­em­ploy­able.

Ev­ery­one knows that a per­son with only $10 in her pocket can­not ex­change her money for some­thing priced at $15. In­tu­itively, then, if a worker’s max­i­mum pro­duc­tive out­put (of, say, $10) is ex­ceeded by the leg­is­lated min­i­mum wage of $15, she will strug­gle to find or keep a job.

Labour mar­kets, just like mar­kets for goods and ser­vices, are sub­ject to the law of de­mand – the cen­tral con­cept in mod­ern eco­nomics. When some­thing be­comes more ex­pen­sive, the de­manded quan­tity will fall.

This isn’t just the­ory at work: most em­pir­i­cal re­search con­firms the neg­a­tive con­se­quences of min­i­mum wages. Cana­dian meta-stud­ies find that rais­ing the min­i­mum wage by 10 per cent re­duces youth em­ploy­ment by about three to six per cent. For youth earn­ing be­tween the cur­rent min­i­mum wage and the pro­posed higher min­i­mum wage, em­ploy­ment falls by up to 20 per cent.

The story gets worse for the Mar­itime Prov­inces. Our pol­icy anal­y­sis for the At­lantic In­sti­tute for Mar­ket Stud­ies shows that the ef­fects of min­i­mum wage hikes are likely to be strong­est in this re­gion.

The Mar­itimes have the high­est pro­por­tion of em­ploy­ees mak­ing close to the min­i­mum wage. Th­ese work­ers are at the high­est risk of los­ing their jobs when­ever the min­i­mum wage is raised. Many of those priced out of work will be youth.

When youth lose their jobs, they lose not only in­come, but also valu­able ex­pe­ri­ence. Even when they keep their jobs, em­ploy­ers of­ten re­act to wage hikes by re­duc­ing train­ing and other ben­e­fits. Th­ese lost op­por­tu­ni­ties dam­age ca­reer de­vel­op­ment.

Con­sider that young peo­ple tend to have few skills and lit­tle ex­pe­ri­ence. Ex­chang­ing their labour for low wages gives them the work ex­pe­ri­ence they need for fu­ture, bet­ter-paid em­ploy­ment. If gov­ern­ment makes hir­ing young peo­ple pro­hib­i­tive through a higher min­i­mum wage, fewer may fin­ish univer­sity or col­lege hav­ing ever held a job.

Th­ese are par­tic­u­larly dam­ag­ing re­sults, con­sid­er­ing how badly At­lantic Canada needs to re­tain its young peo­ple. Worse still, min­i­mum wages fail to ac­com­plish their stated pur­pose of re­duc­ing poverty. Far from help­ing the poor, elected of­fi­cials are sim­ply re­mov­ing the bot­tom rungs from the eco­nomic lad­der.

Min­i­mum wage sup­port­ers ar­gue that their pol­icy helps the poor by “pro­tect­ing” work­ers from be­ing “ex­ploited” by busi­nesses. But it is com­pet­i­tive labour mar­kets, not wage con­trols, that pre­vent work­ers from be­ing un­der­paid. If work­ers pro­duce far more than they are paid, com­pet­ing busi­nesses would hire them away from their cur­rent “ex­ploit­ing” em­ployer.

Eco­nomic growth re­quires greater pro­duc­tion. But by leg­isla­tively pric­ing low-skilled work­ers out of a job, the min­i­mum wage serves the op­po­site pur­pose and re­duces growth. And since work­ers will be un­able to find em­ploy­ment if their skills fall be­low the leg­is­lated min­i­mum, th­ese low skilled work­ers will be worse off.

Gov­ern­ments should abol­ish the fruit­less min­i­mum wage if they want to do right by young and low-in­come per­sons. Keep­ing more young peo­ple in the re­gion will achieve more for the econ­omy than man­u­fac­tur­ing greater un­em­ploy­ment.

The Mar­itimes have the high­est pro­por­tion of em­ploy­ees mak­ing close to the min­i­mum wage. Th­ese work­ers are at the high­est risk of los­ing their jobs when­ever the min­i­mum wage is raised, say Matthew Lau and Marco Navarro-Génie. THE GUARDIAN/DE­POSIT PHO­TOS

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