THE COLD, HARD TRUTHS ABOUT MINIMUM WAGE,
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As governments in Alberta, Ontario and B.C. plan to increase their minimum wage to $15 an hour, it’s fair to say the move has stirred up some emotions. On one side, proponents argue it’s a righteous campaign to bring fairness to exploited dishwashers and cashiers. On the other side, free- enterprise types see it as a wrong-headed crusade to force employers to pay workers more than they’re worth. But there are differences between what a minimum wage “should” do, and what it can do. Below are some of the cold, hard economic facts compiled by Tristin Hopper that may quash some of the more sunny promises of a “living wage.”
When you make things more expensive, people buy less of it
Many of the Canadian governments now backing a $ 15 minimum wage are also supporting a carbon tax. The principle of the carbon tax, of course, is that people will buy less fossil fuels if those fuels cost more. There’s no reason to believe the same principle doesn’t apply to workers. Labour, after all, is just another input into the cost of running a business. If a law were passed that suddenly made avocados more expensive, few would be surprised if restaurants started going easier on the guacamole. Similarly, if a worker is more expensive, it’s rational to expect that employers will be more reticent to hire them.
It’s reasonable to expect job losses
It’s not an ironclad rule that higher minimum wages lead to layoffs. A vast array of U. S. studies have found little to no “disemployment” after modest increases to the minimum wage. Sometimes, t he employment rate has even gone up. However, Canadian studies are more worrisome. In Ontario, the Fiscal Accountability Office has forecast that the province will suffer job losses of 50,000 as a result of the minimum wage. TD Bank pegged Ontario’s damage at 90,000 jobs by 2020. The Bank of Canada has estimated that by 2019, Canada will have about 60,000 fewer jobs as a result of provincial minimum wage hikes. Ever since the 1990s, in fact, Canadian studies on minimum wage hikes have repeatedly failed to match the promising results found in U. S. studies, and have usually found evidence of job losses. In short, a $ 15 minimum wage is unlikely to come without costs.
Businesses generally can’t just ‘ make more money’
The ideal outcome to a minimum wage hike would be if business owners simply became more prosperous and shared the bounty with their workers. But if there’s one constant among minimum wage studies, it’s that higherpaid employees generally doesn’t prompt more customers to walk in. As a result, employers have to absorb higher labour costs by toying with the existing ledger. A 2013 report by the Centre for Economic Policy and Research delved into the ways this has happened over the years. Higher- paid employees might have their wages and benefits cut to compensate (a phenomenon known as “wage compression”). Businesses may experience less turnover; fewer workers are hired, but the now-better-paid employees work harder and are less likely to quit. “Picture a bathtub: pouring less water in, but draining less out, need not result in any change in the quantity of water,” University of Calgary economist Trevor Tombe told National Post. Or, businesses can just raise prices. Either way, somebody ends up paying for a higher minimum wage, and there’s no guarantee that cost will be paid out of something uncontroversial like corporate profits.
A higher minimum wage probably won’t create any wealth
There are plenty of things that governments can do to create more wealth: Build railways, reduce crime and defend against foreign invasions, to cite a few. Raising the minimum wage, by contrast, has a pretty spotty record when it comes to growing the economy. The Bank of Canada estimates that scheduled minimum wage increases will shrink the Canadian economy by 0.1 per cent: an imperceptible dent, yes, but certainly not the economic boom some proponents have promised.
It probably won’t fix poverty, and might make it worse
The City of Seattle was one of the world’s first jurisdictions to bring in a $ 15 minimum wage. In an illuminating 2017 study, economists commissioned by the city found that it actually made things worse for workers. The hike in wages had spawned layoffs and cuts in hours, resulting in monthly losses of US$ 125 per worker on average. Similarly, Canadian studies have been extremely skeptical of the minimum wage’s ability to fight poverty. For governments that legitimately want to alleviate poverty, a 2009 paper in the journal Canadian Public Policy suggested they would be much better served with tax credits and prescription drug programs.
It’s not a blanket protection of low- income workers
Canada, like much of the western world, has seen an explosion of people earning their living as independent contractors in the “gig” economy: Uber and Grubhub drivers, Airbnb hosts and the like. No data exists to show any correlation between minimum wage hikes and an expansion of the gig economy. Toronto Uber drivers earned between $ 8 and $ 25 an hour before the minimum wage hikes, and they’ll earn between $8 and $25 an hour after the minimum wage hikes. Meanwhile, the minimum wage might be sparking price hikes that raise that Uber driver’s cost of living. A 2015 Stanford University study found that for low-income families who don’t happen to count a minimum wage earner among themselves, a hike to the minimum wage is effectively the same as a hike to the sales tax.
The uncertainties are enormous
Minimum wages have generally risen slowly: a quarter here, 50 cents there. By contrast, Ontario’s minimum wage will rise 29 per cent ( from $ 11.60 to $ 15) within the span of a year. Not only is the province raising the minimum wage to a level that is proportionally higher than anything known before, but it is doing it within an incredibly short timeline. “It’s much more likely that there will be job losses in Ontario since many of the offsetting factors may not be able to operate so quickly,” said Tombe. There are also vast regional differences to consider. Alberta’s move to $ 15 an hour will likely have relatively little effect, because the province is already home to some of the highest wages in the country. By contrast, it’s a much bigger deal in a Northern Ontario town where houses cost $100,000.