Three reasons why Alberta’s minimum wage hike is misguided
Today, the Alberta government is hiking the minimum wage from $10.20 to $11.20, as part of its plan to raise the rate to $15 per hour by 2018. To mark the occasion, we’ve put together a list of three key reasons why raising the minimum wage is misguided, particularly as the province struggles through economic challenges.
1) It will not effectively fight poverty
Proponents of minimum wage hikes may have their hearts in the right place but the Canadian evidence shows that raising the minimum wage does not have a statistically significant effect on poverty. In fact, one academic study found that raising the minimum wage increased the share of Canadian families falling into relative poverty. The minimum wage’s failure as an anti-poverty tool makes sense when we understand who actually earns the minimum wage. According to Statistics Canada data, 87.5 per cent minimum wage workers in Canada do not live in low-income households (as defined by LICO).
Surprised? You shouldn’t be. The typical minimum wage earner is part of a household with other income earners, meaning total household income is higher than what a single minimum wage would provide. In Alberta, approximately 50 per cent of minimum wage earners live with their parents or other relatives, the vast majority of whom are youths aged 15 to 24. Another 26 per cent have an employed spouse. The goal of helping struggling families is laudable, but raising the minimum wage simply isn’t a good way to achieve it.
2) It will reduce employment opportunities for low-skilled workers
A large and robust academic literature has found that increasing the minimum wage negatively impacts employment. Research specific to Canada’s experience has been consistent on this point over the years with studies finding that, on average, a 10 per cent increase in the minimum wage decreases youth employment by between three and six per cent. Notably, as of Oct. 1, Alberta’s minimum wage will increase by 9.8 per cent compared to the day before.
This doesn’t mean that Alberta employers will be handing out pink slips in droves today. But over time, minimum wage hikes will discourage future job growth and employers will seek ways to reduce the artificially higher labour costs by cutting back on hours, providing less on-the-job training, and switching to more automation.
3) It will rob young people of the opportunity to gain valuable work experience
Low paying jobs generally provide young workers with an opportunity to enter the workforce and gain valuable experience and skills, helping them command higher pay down the road. Indeed, research specifically examining minimum wage earners confirms that it’s a stepping stone to higher paid work—often in very short order.
Young and other low-skilled workers tend to be adversely affected by a minimum wage increase precisely because they lack the experience and qualifications to compete with more experienced and productive workers. Not surprisingly, employers respond to a higher minimum wage by giving employment priority to their most productive workers to justify the higher pay. But this means there are fewer opportunities for the young and low-skilled to find work and gain the valuable work experience they need.
Bottom line: raising the minimum wage is a misguided policy. The Alberta government should consider the evidence before implementing further increases.
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