Minimum wage hikes—not a good way to reduce poverty

A recent study, which found that Alberta’s minimum wage is not a “living wage,” made headlines around the province. While many may conclude that raising the minimum wage would therefore be a good strategy to help the working poor, such conclusions would miss important facts. For instance, the fact that 93 per cent of minimum wage earners in Alberta don’t even live in low-income households.

Let’s look at recent history. Over the past decade, the Alberta government has raised the minimum wage significantly, from $10.25 in 2009 to $15 in 2019 (after adjusting for inflation). That’s a 46 per cent increase.

One of the most common arguments in favour of raising the minimum wage is that doing so will reduce poverty. But according to research, there’s no clear evidence of a link between a higher minimum wage and reduced poverty levels, partly because the extent that minimum wage increases can help reduce poverty hinges on a number of factors, including the specific characteristics of minimum wage workers.

For instance, higher wage floors will likely be more effective at reducing poverty if minimum wage earners tend to be in low-income households (disregard, for a moment, the potential negative effect on employment levels). But again, in Alberta, only 6.6 per cent of all minimum wage earners live in low-income households, as defined by Statistics Canada’s Low Income Cut-off (basically, a household with income below the cut-off will likely devote a larger share of its income on food, clothing and housing than the average family).

Put simply, a vast majority of minimum wage earners in Alberta are not living in poverty.

Moreover, the majority of minimum wage earners in the province (46.4 per cent) in 2019 (the latest year of available data) were teenagers or young adults aged 15 to 24. Among this group, 81.2 per cent lived with their parents or other relatives. And only 3 per cent of all minimum wage earners are single parents with young children.

Finally, there are other potential negative consequences to consider. As businesses respond to the increase, a higher minimum wage can lead to fewer employment opportunities, particularly for young and inexperienced workers. It can also lead to less hours available for work or reductions in non-wage benefits. Put differently, raising the minimum wage can actually hurt the working poor and/or prevent those in poverty from getting a job and working more hours.

Recent headlines, which suggest the minimum wage is not a “living wage,” have reignited discussion about raising the minimum wage in Alberta. But a closer look at the characteristics of minimum wage workers, and the potential unintended consequences of an increase, should also raise questions about the efficacy of minimum wage hikes in reducing poverty.