Minimum wage increase a job killer
As entrepreneur Robert J. Ringer famously said, Reality isn't the way you wish things to be, nor the way they appear to be, but the way they actually are. And when it comes to minimum wage increases, the wishful thinking of politicians and policy-makers can't overcome the unpleasant reality that minimum wage increases are job-killers.
That wishful thinking was on display last week when, just two days after stating that her government would focus on job creation in our province, Premier Christy Clark announced her first major policy move, a $2.25 (28-per-cent) increase to British Columbia's current minimum wage of $8 per hour.
I don't think it will cost jobs, she stated.
Of course, Clark and others who advocate for higher minimum wages may believe what they like. But the hard facts tell a different story.
A voluminous body of academic research has found that minimum wage hikes increase labour costs for employers who respond by reducing the number of employees and/or the number of hours their employees work.
Indeed, a comprehensive review of more than 100 academic studies on the effect of minimum wages in 20 countries -conducted by internationally recognized minimum-wage experts Prof. David Neumark of the University of California and Dr. William Wascher, a U.S. Federal Reserve Board economist -found that the overwhelming majority show that minimum wage increases have negative employment effects.
The evidence from Canada shows much of the same. At least 14 academic studies have examined the impact of minimum wage increases in various provinces. Based on these studies, a 10-per-cent increase in the minimum wage is likely to decrease employment by up to 20 per cent among those young workers who, before the minimum wage hike, were paid between the existing level and the new higher minimum wage level.
By our estimates, hiking the minimum wage to $10.25 an hour from the current rate of $8 an hour will result in a loss of upwards of 46,000 jobs for young workers.
Those who think that the phased-in increase (three 75-cent increases over the next year) will reduce the negative impact should read a study by University of Toronto professor Michele Campolieti published in the Canadian Journal of Economics. Campolieti examined the impact of minimum wage increases on jobs from 1993 to 1999 and found that a 10 per cent increase in the minimum wage decreased employment for affected workers by 10 per cent to 20 per cent. He then examined the impact of B.C.'s two 50-cent minimum wage increases in 1995 and found that these consecutive increases reduced employment among directly affected workers by between 20 per cent and 40 per cent, approximately twice the magnitude of his national findings.
There are also those who wrongly claim that employers won't reduce their staff since the increase to $10.25 is simply an adjustment to reflect the inflation that has occurred since 2001. First, prices in B.C. only increased by 16.5 per cent since 2001 while this minimum wage hike is a 28-per-cent increase. Secondly, employers make decisions about how much labour to utilize based on current labour costs. In addition, those earning the minimum wage aren't the same workers who were earning the minimum wage 10 years ago. Data from Statistics Canada reveal that nearly 60 per cent of B.C.'s minimum wage workers are young, between the ages of 15 and 24, and that over 80 per cent of them live with their families.
Research shows that after one year, more than 60 per cent of minimum wage workers earn more than the minimum, with a typical wage gain of about 20 per cent. After two years, the percentage of workers earning more than the minimum wage increases to more than 80 per cent.
Clark and her Liberal government may have good intentions, but the facts show that minimum wage increases have very negative consequences. Rather than increase the minimum wage, she should have eliminated it completely.
The Economic Effects of Increasing British Columbia's Minimum Wage aims to empirically assess the employment losses associated with increasing the minimum wage in British Columbia.
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