Errors and faulty arguments underlie argument for $15 minimum wage

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Appeared in the Edmonton Journal, August 15, 2016

In a recent column in the Edmonton Journal, analysts from the Caledon Institute defended the Notley government’s plan to increase the provincial minimum wage to $15 per hour by 2018. While the column is riddled with factual errors and faulty arguments, the authors got one thing right: Albertans have gone through rough economic times lately. But rather than propose policies that would help counteract the negative shocks, they applaud a policy that will make matters worse and harm the very workers they want to help.

Let’s start with the column’s incorrect claims about who earns the minimum wage. The authors suggest most minimum wage earners are “heads of households raising families.” That is false.

In reality, 50 per cent of minimum wage earners in Alberta live with parents or other relatives, with the vast majority of them being teenagers or youths (ages 15 to 24). Of the remaining minimum wage earners, 26 per cent have working spouses, most of whom earn more than the minimum wage.

Put another way, minimum wage earners tend to live in households with multiple-income earners, meaning they are not living on one minimum wage earner’s income alone.

In fact, only two per cent of Canadian minimum wage earners are single parents with young children. We can all agree that helping this group is an important and worthwhile objective, but raising the minimum wage is the wrong way to do it.

The above statistics—all from Statistics Canada—challenge the misperception that minimum wage earners generally live in poverty. In fact, the opposite is true—88 per cent of all minimum wage earners do not live in low-income households, as measured by Statistics Canada’s Low Income Cut-Off.

Clearly, the minimum wage does not effectively or efficiently target the working poor. But it also has serious negative consequences for low-skilled workers. Despite a large and robust academic literature finding minimum wage hikes reduce employment, the Caledon analysts suggest this time might be different and the hike may even increase job opportunities.

This is wishful thinking. Canadian research consistently finds that for every 10 per cent increase in the minimum wage, we can expect youth employment to decline by three to six per cent. The Notley government plans to raise the minimum wage by 34 per cent from its current rate of $11.20.

When governments impose a minimum wage higher than what would otherwise prevail, and without corresponding productivity increases, employers find ways to operate with fewer workers and/or reduced labour costs. While the more productive workers gain through a higher wage, their gain comes at the expense of those who now have fewer employment opportunities. Young and low-skilled workers are most adversely affected because of their lack of experience and skills.

But minimum wage hikes don’t just lead to job losses (both today and in the future) for low-skilled workers. Employers also respond by cutting back on hours, providing less on-the-job training, and moving towards more automation.

Minimum wage hikes ultimately rob young and low-skilled workers the opportunity to gain valuable experience and develop skills, which would help them command higher pay down the road. Indeed, earning the minimum wage is typically a brief stepping stone to a higher paying job.

Apart from minimum wage hikes, the provincial government has pursued many other policies that undermine Alberta’s struggling economy. It has raised a host of taxes including personal and corporate income taxes as well as the carbon levy, which will discourage investment and entrepreneurship. Successive governments have also allowed rapid spending increases over the past decade resulting in mounting debt and eroding the province’s financial position.

While we agree with the Caledon analysts that Alberta families have been hard hit economically in recent years, government policies are making things worse and the plan to raise the minimum wage is a another clear example.