What to make of Ontario’s January job losses
Recently, Statistics Canada released its job data for January. The report showed bad news for Ontario, with 51,000 jobs lost.
On social media, many were quick to note that the job losses happened alongside the steep minimum wage increase. The timing, however, is for the most part coincidental. Job losses were heaviest in high-wage fields and there isn’t evidence lower-wage industries took a big hit.
It’s important to note this, because looking at job data in the specific month when a minimum wage hike goes into effect is the wrong way to evaluate policy effects.
Many factors influence monthly job-creation and a change to the minimum wage can easily be swamped. The minimum wage hike surely had some effect, but other factors such as a cooling economy bear primary responsibility. Closely linking January’s job losses to the Wynne government’s minimum wage hikes without recognizing other causes creates a dangerous precedent.
What if, for example, when Alberta’s minimum wage goes up next year the province is enjoying strong growth from an oil-price rebound, and so in the month when the minimum wage goes up, job growth booms? It would be a mistake to think this hypothetical data point proves that raising the minimum wage is harmless, but we open the door to this type of thinking by blaming January’s bad job numbers in Ontario on the minimum wage.
What’s more, tightly linking last month’s job numbers to the minimum wage promotes a misperception about how minimum wages actually hurt the economy over time. In response to higher minimum wages, most employers don’t run out and disrupt their entire operation by promptly firing a lot of employees they’ve already trained and who already work well together.
The negative effects of the minimum wage on employment are more subtle and play out over time. Employers gradually cut hours or reconsider hiring somebody new. Perhaps, in the worst case, they simply go out of business because their wage bill is too steep.
These negative effects don’t show up all at once, rather they will influence rates of job-creation in the future. Indeed, there will be many months where the total number of jobs goes up while the minimum wage exerts hidden damage—since we know from research that in a counterfactual world without the minimum wage hike, job-creation would be even faster.
Simply put, it’s tempting to jump on data points that seem to support our view points. Climate change skeptics sometimes point to severe cold snaps as evidence against climate change, while proponents of higher taxes may note a period of GDP growth after a tax hike as “proof” such policies don’t hurt the economy.
But reality is far more complicated than that, and playing that game will serve the interests of proponents of bad policy more than help those who have real evidence and data on their side.
January’s job losses in Ontario don’t prove that the minimum wage hike is costing the province jobs. For that, we need to look at the mountain of empirical evidence collected across Canada over a long period of time, which suggests this is almost certainly the case and will continue to be in the future.