Minimum wage hikes will hurt young people, immigrants

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Appeared in the Financial Post, Aug 2, 2017

With many of Canada’s largest provinces (Ontario, Alberta, British Columbia) either committing to or considering a minimum wage of $15 per hour, many analysts—including us—note that this policy will hurt many vulnerable workers by reducing job opportunities.

But in an open letter to Ontario Premier Kathleen Wynne, 53 “economic experts” dismissed this concern as “fear-mongering” and “out of line with the latest economic research.”

That is simply false. The academic evidence in Canada, including the latest research, consistently finds that raising the minimum wage leads to lower employment for vulnerable, low-skilled workers (often young people ages 15 to 24).

Consider the very latest research published this month. In a comprehensive academic study, University of Waterloo professors Kate Rybczynski and Anindya Sen measure the employment effects of 185 changes to the minimum wage in Canada’s 10 provinces from 1981 to 2011. The study controls for a host of factors that could affect employment including changing labour market conditions and the economic business cycle.

Perhaps unsurprising to those familiar with the existing body of Canadian research, the study finds minimum wage hikes reduce job prospects for vulnerable workers. Specifically, it finds a 10 per cent increase in the minimum wage leads to up to a four per cent drop in teenage employment. For perspective, the Ontario government is proposing a 32 per cent hike in the minimum wage over the next 18 months.

Again, the effect on teen employment is not a novel result. Despite what the “economic experts” of the open letter claim, the 20 Canadian studies published in academic journals dating back to 1979 have produced a clear consensus—minimum wage hikes reduce employment opportunities for young workers. Not one of these studies contradicts this conclusion.

That shouldn’t surprise anyone familiar with basic economics. Just as consumers tend to buy less if the price of a product increases, employers will hire fewer workers and/or reduce labour costs if government regulations make it more expensive to employ workers without corresponding improvements to workplace productivity. It’s the least-skilled workers—often those ages 15 to 24—who lose out on employment opportunities because they tend to be the least productive due to their dearth of experience and skills.

A second—and in fact, novel—finding of the study by the University of Waterloo professors is that immigrants (ages 25 to 54) are also negatively affected by minimum wage hikes. Recent immigrants can be a vulnerable group of workers as they attempt to integrate into the Canadian labour market with unrecognized education credentials, struggles with language differences and other problems. According to the study, a growing share of minimum wage workers are recent immigrants (arriving in the last 10 years), and the group comprised 19 per cent of Ontario minimum wage workers in 2011.

Far from fear-mongering, the Canadian evidence clearly shows that minimum wage hikes reduce employment opportunities for low-skilled workers. Saying otherwise does a disservice to the public debate and those Canadians adversely affected by the policy.

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