Minimum wage hikes—flawed anti-poverty policy
In recent weeks, a raft of new studies have been published by various organizations warning that the Wynne government’s plan to dramatically increase the minimum wage over the next 15 months could significantly slow the pace of job-creation in Ontario.
The estimated effect varies from study to study. On the lower end, Ontario’s Financial Accountability Office estimated that the planned wage hikes will result in the approximately 50,000 lost jobs, with the losses concentrated among young adults and teenagers. TD Bank issued a report with a somewhat higher estimate, forecasting a loss of 80,000 to 90,000 jobs.
Labour Minister Kevin Flynn has pushed back against these studies and stated that the government will push ahead with its minimum wage hike anyway. The minister defends the government’s position by saying that working Ontarians “deserve to be able to pay rent, to buy food” and put shoes on their kids’ feet.
But there’s a fundamental problem with Minister Flynn’s argument. Raising the minimum wage is a poorly targeted policy instrument with which to try to help Ontarians struggling to cover basic necessities. That’s because a large majority of minimum wage workers don’t actually live in poor households, as defined by Statistics Canada’s low income cut-off, a common measure of low income. In fact, only approximately one in seven minimum wage workers in Ontario live in low-income households.
Simply put, while it may be counterintuitive to some, most minimum wage workers aren’t actually poor. In fact, 60 per cent are teenagers or youth aged 15 to 24, the vast majority of which (86 per cent) live with their parents or other relatives.
Another 19 per cent of minimum wage earners in Ontario are married with employed spouses, nearly all (90 per cent) of whom earn more than the minimum wage or are self-employed.
So because they tend to live with other people who earn money, the vast majority of minimum wage workers do not belong to low-income households.
Minister Flynn nonetheless invoked the image of a hard-pressed parent struggling to come up with money to buy their children a pair of shoes—fortunately, this is not the reality for most minimum wage workers. In fact, just 2 per cent of minimum wage workers are single parents with young children.
For these reasons, there just isn’t a strong correlation between working a minimum wage job and living in poverty or low-income status.
Which takes us back to minimum wage hikes. Since the vast majority of minimum wage workers aren’t poor, Canadian research suggests a higher minimum wage isn’t a terribly effective anti-poverty tool. Recent Canadian studies have looked at the relationship between minimum wage and poverty. Some find no significant effect. Others actually find that a higher minimum wage tends to increase relative poverty (due to negative effects on employment).
While we all sympathize with poor parents who can barely afford decent shoes for their children, the evidence shows that Ontario’s drastic minimum wage increase will do little—if anything—to assist the worst-off families in the province. In fact, the evidence suggests it may do more harm than good, while simultaneously eliminating jobs for teenagers and young adults trying to reach the first rung on the economic ladder and get started on their careers.