Minimum wage hike a success despite gloomy predictions

This op-ed by Parkland Institute research manager Ian Hussey appeared in the Edmonton Journal on September 18, 2018.

Alberta’s minimum wage was tied for Canada’s lowest when Rachel Notley became premier in May 2015. On Oct. 1 it will rise to $15 an hour — a 47-per-cent hike over three years.

In 2015, the Canadian Federation of Independent Businesses (CFIB) claimed that Alberta’s increase would cost the province “between 53,500 and 195,000 jobs.”

In other words, the CFIB believed that as many as two-thirds of the 300,000 Alberta workers making less than $15 an hour could lose their jobs. In 2017, the C.D. Howe Institute claimed the increase to $15 by 2018 “could lead to the loss of roughly 25,000 jobs.”

History, however, doesn’t back up critics’ sky-is-falling claims. In 2009, Hristos Doucouliagos and T.D. Stanley published a meta-study of 64 U.S. minimum wage studies between 1972 and 2007.

They concluded that minimum-wage increases have no or near-zero effect on employment. In 2016, with the provincial economy still in recession, Alberta’s accommodation and food-service sector and wholesale and retail trade sector, where low-wage jobs are concentrated, added 7,600 jobs.

In 2017, these two sectors added a further 17,400 jobs. These jobs were created despite the minimum wage increasing 33 per cent from 2015 to 2017.

The main reason doom-and-gloom predictions fail to materialize is because critics assume employment effects for teenagers also apply to workers over age 20. In reality, minimum-wage increases tend to result in a small percentage of teens losing their jobs, while losses for adult workers are effectively zero. This is because the vast majority of minimum-wage workers are necessary to businesses, and if employers must cut, they lay off their least-experienced employees.

About 75 per cent of Albertans making less than $15 an hour, however, are not teenagers. In fact, 40 per cent are parents, and over 14,000 are single parents.

Critics also claim that raising the minimum wage isn’t an effective way to reduce poverty. The reality is past minimum-wage increases had no impact on poverty rates because they were too small, keeping full-time earnings below the poverty line.

For example, in 2013 Alberta’s minimum wage went up 20 cents to $9.95. Earning that wage for 35 hours a week for 52 weeks, a worker’s annual pre-tax income was $18,109. Canada’s 2013 after tax Low Income Cut-Off (the poverty line) for a single person with no children living in a city of at least 500,000 people was $19,744.

The 2016 poverty line (the latest one) for the same person was $20,675. At $15 an hour, a full-time worker’s annual pre-tax income is $27,300, so the $15-wage raises them above the poverty line. The worker sees a sizeable net gain in income since they’ll pay little income tax (Alberta’s 2017 personal income tax exemption was $18,690).

Is Alberta’s minimum-wage increase causing economy-wide inflation, as some critics suggest? Absolutely not; inflation in Alberta is driven by the pace of oilsands development, not long-overdue minimum wage hikes.

The inflation-adjusted average provincial minimum wage across Canada only went up a penny from 1975 to 2013. In 2019 a $15 wage, when adjusted for inflation, will only be about a dollar more than the 1977 minimum wage.

There are, in fact, many benefits to raising the minimum wage. It stimulates the local economy, because low-income earners spend most of their income, and chiefly in their community. Overall consumer spending power rises, as does the amount of money circulating in our economy. Meanwhile, a $15 minimum wage significantly boosts the income of low-wage workers as a group and slows down widening income inequality, especially as 63 per cent of Alberta low-wage workers are women.

Some claim Alberta’s economy, especially the hospitality sector, is too weak right now to support higher wages. But just last month, ATB Financial reported that Alberta “consumers are spending money at near-record levels.”

Higher minimum wages can even save taxpayers money. People on low incomes rely more on social services. As Finance Minister Joe Ceci has said, “there is almost a kind of subsidy going to private businesses through the charitable sector to keep people whole.”

All in all, minimum-wage hikes don’t hurt our economy; they help more working Albertans share in the province’s prosperity.