Minimum wage hike will hurt—not help—vulnerable workers

The Liberals and Conservatives have strayed so far to the interventionist side of the economic policy spectrum that the NDP must work hard to make headlines. Enter the Ontario NDP’s recent proposal for a $20 hourly minimum wage through steady increases over the next five years.

In reality, high wages can’t be legislated. If a worker’s hourly productive output (the amount she contributes to a business’ bottom line) is below the stated minimum, an employer would be able to offer her a job only by losing money. Raising the minimum wage, by raising the minimum level of productivity a worker needs to be employable, makes more workers unemployable.

Moreover, the workers most negatively affected are the most disadvantaged in the labour force—those with the least experience, least skills, least education and fewest qualifications—and populations that suffer most from racial or other forms of unfair discrimination. Far from being an action of compassion, raising the minimum wage is actually an act of cruelty.

In fact, the first minimum wage laws passed a century ago were intentionally cruel. British Columbia’s minimum wage law in 1925 was meant to price Japanese immigrants out of jobs. Racist labour unions in the United States similarly advocated for minimum wage laws to oppress blacks. In apartheid South Africa, too, minimum wage laws were used to encourage discrimination.

Even if the stated intentions of minimum wages have since improved, the harmful effects remain. Notwithstanding claims that minimum wage hikes do not kill jobs, a recent review by economists David Neumark and Peter Shirley of U.S. studies over the past three decades found clear evidence of negative employment effects, especially among teenagers and the less-educated.

Canadian studies find similar results—employment losses for the least advantaged members of the labour force, including immigrants. Canadian research on the minimum wage destroying jobs includes reports commissioned by the Ontario government in 2007 and in 2014, and a paper from an Ontario government-sponsored think-tank in 2014 and an analysis from the province’s Financial Accountability Office in 2017.

By proposing $20 minimum wage legislation, the Ontario NDP presumably believes that large numbers of Ontario workers—whose labour is worth at least $20 per hour—are being underpaid and exploited by employers who pay them less. It’s a presumption that the actions of politicians suggest have no reasonable basis.

Indeed, if any politician of any political stripe believes there are many workers whose labour is worth $20 hourly yet are being paid only the current minimum wage, then she should leave politics to become an entrepreneur. She could launch businesses to hire these hundreds of thousands of workers, offering to pay them, say, $17 hourly—which would represent a significant wage increase for these workers.

She could then pocket the $3 difference (the $20 she says those workers are worth, minus the $17 wage), multiplied by 2,000 hours per worker per year, and then multiplied by the hundreds of thousands of presumably underpaid workers in Ontario. By putting her money where her mouth is, she could make herself fabulously wealthy, all the while raising wages for the province’s lowest-paid workers.

But if politicians who push for higher minimum wages don’t put their money where their mouth is, we might reasonably conclude they don’t have much confidence in their claims about minimum wages. Neither, then, should we.