The case for a $15 minimum wage in Alberta

One of the planks in the Alberta NDP’s 2015 election platform was a pledge to raise the provincial minimum wage to $15 per hour by 2018. 

Since the May 5th election, which saw the NDP win a sizeable majority, newly minted Premier Rachel Notley and newly sworn-in Minister of Finance and President of Treasury Board Joe Ceci have both reaffirmed that the new government will move forward with their plans to hike the minimum wage as promised. At a May 21 news conference, Notley declared, "Without question, that was in our platform and we intend to move forward on it,"  and Ceci was quoted in the Calgary Sun saying, "things are going to be A-OK on this issue. We're talking about 2018. We'll likely see the minimum wage rise in the fall. Not the full meal deal, but some."

The idea of a $15 minimum wage has been gaining momentum across North American in the past few years because of the "Fight for $15" campaign organized by low-wage earners and union and community advocates. 

Alberta is poised to become the first province in Canada and the fifth jurisdiction on the continent to commit to implementing a $15 minimum wage. Fight for $15 pushes are active in other Canadian provinces, and dozens of American cities are now considering the same policy move. 

In Seattle, for example, large businesses are required to phase in a $15 minimum wage over the next three years, and small businesses are obligated to phase in the same minimum over the next seven years. 

Following Seattle's leadership on this issue, just last week the City of Los Angeles also committed to raising the minimum wage in the city from $9 to $15 per hour by 2020. The City Council made this decision in a 14-1 vote, which gives some indication that many politicians are starting to understand that full-time workers simply can't make ends meet on $9 or $10 per hour. 

As Finance Minister Ceci put it, "A person working a full-time job shouldn't still be poor. They should be lifted out of poverty. You can't do that on $10.20 an hour." 

There are, of course, some key differences between Los Angeles and Alberta taking the $15 plunge. 

Firstly, it's estimated that almost half of all workers in American's second-largest city earn less than $15, meaning the change will have much more widespread impacts than in Alberta, where only 1.5% of workers – about 25,700 people – make minimum wage (compared to 6.8% of workers across Canada and 9.1% of workers in Ontario), and where roughly one in every eight (approximately 250,000) Alberta workers earn between $10 and $15 per hour. 

Secondly, Alberta has had an automatic hike in the minimum wage each fall since 2011. In that year, the annual provincial minimum wage increase became tied to a simple calculation of averaging the annual increases in the provincial Average Weekly Earnings and Consumer Price Index (CPI), a measure of annual inflation in the province. Based on this formula, the province's minimum wage increased from $9.95 to $10.20 on September 1, 2014, making it the last province in the country to hit double digits for its hourly minimum wage. (The minimum wage for workers who serve liquor rose from $9.05 to $9.20 per hour on the same date; NDP spokeswoman Cheryl Oates said that the province's two-tier minimum wage is also under review.)

Los Angeles, on the other hand, won't begin to index the minimum wage to inflation until 2022, when the city will tie annual minimum wage increases to an average of the city's CPI increases from the last 20 years. Like Alberta has done since 2011, the province of Ontario began linking its annual minimum wage increase to the provincial CPI increase last year. 

So Alberta was ahead of the curve in connecting the annual increase to the provincial minimum wage to the annual change in CPI, which is a good thing because Alberta has experienced the largest increase in CPI over the last dozen years of all Canadian provinces. Parkland Institute Distinguished Research Fellow Greg Flanagan recently produced the following table comparing the change in CPI across Canada’s provinces from 2002 to 2014. 

 

Over this 12-year period, Alberta’s inflation was seven percentage points higher than the national average and four percentage points higher than any other province because our provincial economy was growing at a much faster rate than any other province for most of this period. Alberta’s higher-than-average inflation rate means that the cost of goods and services in Alberta rose faster than than in any other province.

This is why it is significant that Alberta is tied with Saskatchewan for the lowest minimum wage of the 10 provinces (see the comparison from Global News below). Alberta and Saskatchewan were the two provinces with the highest rates of inflation from 2002 to 2014, so minimum wage earners in these two provinces not only make less per hour than their counterparts in other provinces, but the purchasing power of their earnings is also eroding.

So, at this general level of analysis and from a simple perspective of social justice, raising the minimum wage in Alberta seems to make sense. But since the NDP swept to power earlier this month, the business lobby has taken aim at the party's minimum wage pledge. The Canadian Federation of Independent Business (CFIB) claims, for example, that "an increase to minimum wage forces [business owners] to look for ways to absorb the cost by reducing hours, scaling back training opportunities or in some cases cutting jobs."

The lobby group further makes the extraordinary claim that "a 50 per cent increase in the minimum wage in Alberta would cost between 53,500 and 195,000 jobs." In other words, according to the CFIB as many as two-thirds of the fewer than 300,000 Alberta workers currently making less than $15 an hour could lose their jobs!

Finally, the CFIB claims that minimum wage "increases do little to reduce poverty, since most minimum wage earners are young, live with family members, and are not from low-income households."

For the remainder of this blog, I will both scrutinize the veracity of these claims and offer some additional arguments for why the Government of Alberta should not only move forward with their pledge to raise the minimum wage to $15 by 2018, but also feel secure about this move as making a significant contribution in their efforts to reduce income inequality and poverty in the province.

It’s true, of course, that businesses will either need to absorb the increased labour costs that are coming down the pipe, accept a lower rate of profit, or pass the increased costs onto consumers. There is some evidence in the academic literature on minimum wages that indicates that some companies will indeed reduce some workers' hours and training opportunities in an effort to rein in costs, and that the price of some retail items will go up a little bit. It remains to be seen if these price increases will be more or less than the price increases that occur when, for example, the price of gasoline or some other input goes up.

Public policy decisions are matters of choice, and almost all of the policy decisions that governments make are complicated and involve tradeoffs. In this instance, there are far more upsides to raising the minimum wage than there are downsides, an argument many economists are now making.

If you’ve been hearing all the sky-is-falling arguments appearing in media reports on the minimum wage debate in Alberta over the last few weeks, you could be forgiven for being skeptical of my last statement. But consider this: experts generally agree that raising the minimum wage has little to no discernible impact on the employment rate, and there are "meta-studies" (studies of studies) on minimum wage that come to this conclusion.

Furthermore, in an April 2015 research report on whether British Columbia should increase their minimum wage to $15 per hour, David Green, a University of British Columbia economics professor and expert in minimum wage issues, stated that "the benefits of raising BC’s minimum wage to $15 through a series of pre-announced staged increases far outweigh the likely costs. Claims that such an increase will lead to massive job losses in low-wage sectors of the economy are not credible."

Green goes on to explain that "estimates showing job loss effects of minimum wage increases apply only to teenagers. Estimated effects for young adult and adult workers range from insignificant to non-existent."

Earlier this week, Professor Green was interviewed by CBC Radio on the likely outcomes of Alberta's upcoming minimum wage hike, and again argued that "concern that minimum wage increases will result in significant unemployment is misplaced."

An October 2014 research report by economists Jordan Brennan and Jim Stanford confirms Green’s assertions. Brennan and Stanford studied the historical changes to the minimum wage across Canada's 10 provinces from 1983 to 2012. They also did seven different statistical tests (regression analyses) per province for a total of 70 tests. The results? In 63 of the 70 tests, a full "90 per cent of the tests indicated no statistically significant relationship whatsoever between a higher minimum wage and labour market outcomes in Canada."

Brennan and Stanford continue, “In seven of the 70 regressions the minimum wage was found to be a statistically significant determinant of employment or unemployment. However, of these cases, the effect was seen to be positive (leading to higher employment or lower unemployment) almost as often (in three cases) as it was seen to be negative (four cases).” Moreover, they found that "even when the analysis is focused on those segments of the labour market where low wages are most common (among young workers, and in the retail and hospitality sectors), there was no consistent evidence of significant disemployment effects from higher minimum wages."

So, if increasing the minimum wage doesn't significantly affect the rate of employment, then what does?

The answer is consumer spending power.

In short, higher wages lead to stronger consumer spending. As Brennan and Stanford put it, "consumption expenditure is the largest single component of GDP [Gross Domestic Product] by expenditure, making up around half of all expenditure in the economy." In other words, increasing the minimum wage is in effect a stimulus to the economy because low-income earners spend all of their income. Raising the minimum wage means more money circulating in our economy and low-income earners have more spending power.

So raising the minimum wage increases overall consumer spending power, and that is a good thing for Alberta's business community. It is also a good thing for the government because when the minimum wage is low, as it is currently, low-income folks end up engaging more with various social services and assistance programs from the community at large. As Finance Minister Ceci recently stated, "There is almost a kind of subsidy going to private businesses through the charitable sector to keep people whole."

Economic research on minimum wage also shows that increasing the minimum wage can lead to higher labour productivity and less turnover, and thus contributes to the stabilization of both workplaces and workers' lives.

Brennan and Stanford explain that "a higher minimum wage is shown to be associated with higher labour productivity for several potential reasons, including greater loyalty and work effort by better compensated workers, more attention to performance standards by employers, and more investments by employers in innovation and technology instead of relying on cheap labour as their core business strategy."

The final CFIB claim to address is that "increases do little to reduce poverty, since most minimum wage earners are young, live with family members, and are not from low-income households."

This is an erroneous statement on two levels.

Firstly, Professor Green states that "the minimum wage has been set so far below the poverty line that past increases have not been large enough to lift full-time workers out of poverty." So it isn't that an increase to the minimum wage can't be part of a policy package meant to address poverty, it is that the increase needs to be large enough to be meaningful to workers' lives.

Secondly, most minimum wage workers in Alberta are in fact not teenagers or inexperienced, but rather adult workers trying to get by, and many are working to support their families. The Government of Alberta reports that 65% of our province's minimum wage earners for the 2013/14 fiscal year were over 20 years of age. In addition, Statistics Canada data for 2014 shows that 77% of Alberta workers earning less than $15 per hour were over the age of 20.

Furthermore, 61% of Alberta's low-wage earners are women, so raising the minimum wage to $15 per hour will contribute to sorely needed efforts to address Alberta's gender gap and income inequality chasm, both of which are the highest amongst Canada's provinces.

In addition, a 2014 Parkland Institute fact sheet found that Albertans rich and poor alike get sick more than other Canadians because of the level of income inequality in the province. So the combination of raising our provincial minimum wage to $15 per hour and the new NDP government's plan to introduce a progressive income tax will result in better overall health outcomes for all Albertans, and perhaps lower public expenditure per capita on Alberta Health Services.

This is part of the reason why the Organization for Economic Cooperation and Development (OECD), hardly a bastion of progressive thinking, published a research report earlier this year entitled, In It Together: Why Less Inequality Benefits All. Another big reason the OECD is railing against high rates of inequality is because inequality has also be found to slow down economic growth.

So, despite what you've been hearing from provincial lobby groups, both Alberta workers and business owners have plenty of reasons to get behind the new Government of Alberta's promised initiative to raise the minimum wage to $15 in a series of pre-announced staged increases between now and 2018.