B.C. minimum wage hike may actually hurt workers it’s designed to help

Last week, the Horgan government raised British Columbia’s minimum wage to $14.60, up from $13.85—part of a multi-year plan to bring the wage floor to $15.20 per hour. Cumulatively, the plan will make for a substantial increase to the minimum wage, which was $11.35 in 2018. In total, the minimum wage will increase (in nominal terms) by 34 per cent over approximately three years.

Proponents of a higher minimum wage frequently argue that increases will reduce poverty. However, there’s good evidence that casts doubt on this claim.

There are two key reasons why many economists argue higher minimum wage may not be an effective anti-poverty tool. First, quite simply, is most minimum-wage earners do not live in low-income or impoverished families because most are secondary or tertiary earners in non-poor households. Any extra income that flows to those families, by definition, can’t help fight poverty.

The second, and perhaps more important, reason that higher minimum wages are often ineffective anti-poverty tools is that the preponderance of Canadian evidence suggests higher minimum wages have measurable “disemployment” effects. In other words, higher minimum wages tend to reduce the rate of employment growth from what it would otherwise be.

Consider this.

Of course, last week employers in B.C. did not quickly hurry to lay off staff in light of the 75-cent increase to the minimum wage. However, evidence suggests that with higher wage floors over time, employers tend to hire fewer people at the margin and create less work hours for those they do hire. As a result, the economy produces less jobs than it would have otherwise, as more people (particularly younger and less-skilled workers) find it harder to find jobs.

The factors described above suggest theoretical reasons why a higher minimum wage may do little or nothing to fight poverty. But again, evidence supports the theory. Although the effect of minimum wages on poverty has been studied less than the effect on employment, a 2012 study published in the Journal of Labour Research measured the impact of minimum wages increases from 1997 to 2007 on low-income status and could not find any impact of higher wage floors on poverty.

The fact that B.C. (like the rest of Canada) is experiencing a steep recession with high unemployment rates is another factor that should give people pause before celebrating a higher minimum wage. In the months ahead, many young and less-skilled workers who have been hit hard by the recession will be looking for work, and a higher minimum raise could make it more difficult for some of them to find it.

Most minimum wage workers aren’t poor, and negative effects on employment can make matters worse for the people the policy is designed to help. Acceding to the best available evidence, if governments want to find effective anti-poverty tools, they should look beyond raising the minimum wage, which may have intuitive appeal to some, but does not have a proven record of meaningfully reducing poverty in Canada.