The long overdue minimum wage expert panel report has finally been released three years after it was submitted. It shows that the shift to a $15 minimum wage in three years led to a loss of about 25,000 jobs for the 15 – 24 age group. Overall, the panel suggests having an entry level wage differential for less experienced workers and accounting for the differential cost of living in rural and urban areas. The clamour around this report comes in the context of an impending election where the NDP is to be punished for their “large, unexpected changes to minimum wages”.
The report uses sophisticated statistical methods including regression analysis and synthetic control method. Bright people are quite capable of displaying their intellectual prowess. But then using extremely sophisticated mathematics, bright people were also instrumental in financial engineering, which led to the financial crisis of 2008. Additionally, on regression analysis, distinguished professor Lawrence Summers wrote that “formal econometric work has had little impact on the growth of economic knowledge”. He adds that it “creates an art form for others to admire and emulate but provides us with little new knowledge”.
No wonder, when I looked into the economics literature to develop a renewed perspective on teaching minimum wage, I found so much conflict on the empirical estimates that measure the impact of minimum wage on employment. Some support the Neumark and Wascher (2007) paper based on 100 minimum wage studies that substantiated the consensus view. This view suggests that a 10 per cent increase in minimum wage reduces teenage employment between one per cent and three per cent. Others cite the Doucouliagos and Stanley (2009) paper, which offered a meta-study of 64 studies between 1972 and 2007. They highlight that most precise estimates show zero employment effects of minimum wage.
In Canada, Brennan and Stanford (2014) studied minimum wage increases in 10 provinces over 30 years and found no connection between minimum wage and employment levels. It is therefore not surprising that about 53 economists endorsed a $15 minimum wage for Ontario in 2017. Similarly, over 600 economics professors in the U.S. signed a letter in 2014 concluding that increases in minimum wage have little to no negative effect on employment even during a weak labour market. This includes seven Nobel Prize winning economists who endorsed raising minimum wages by 40per cent.
On the other hand, the Alberta minimum wage expert panel reports a loss of about 25,000 jobs for the 15 – 24 age group, although the “job effects were found to be statistically insignificant among older workers”. However, Lee and Saez (2012) argue that the minimum wage “is nevertheless desirable if the government values redistribution toward low wage workers” and that “the unemployment induced by the minimum wage is efficient.” This means that “unemployment hits workers with the lowest surplus first”, which alludes to workers that are only marginally attached to their jobs.
The benefit of the minimum wage then goes to essential workers for whom a minimum wage job is not a temporary stepping-stone. It is their whole life based on I.Q. and ability determined by nature’s luck of the draw. Viewed as such, minimum wage is one tool that benefits the least advantaged based on the Rawlsian criteria, which itself echoes Matthew 25:40 – ‘whatsoever you do to the least of my people, you do unto me’.
Despite the nuanced depiction of the minimum wage in the economics literature, the reason why some strongly oppose it is “market fundamentalism” or “economism”. This refers to the simplistic soundbites that ECON 101 students are left with long after they have graduated. One such soundbite is that the minimum wage leads to unemployment under perfect competition.
However, such soundbites based on textbook economics usually ignore dissident, diverse, and pluralist voices. Consider, for instance, Professor Emeritus John Komlos, who highlights that unemployment is driven by macroeconomic conditions rather than by the minimum wage or unions. He adds that in real-world oligopolistic markets, increasing the minimum wage redistributes from corporate profits to workers’ wages without causing unemployment (pp. 176-183).
Similarly, the dissident institutionalists argue that the firm does not optimize and that therefore the minimum wage “forces managers to step out of the daily routine” to find “where extra savings can occur”. Likewise, post-Keynesians argue that the minimum wage increases purchasing power and aggregate demand and therefore adds to social cohesion. Thus, a single simplistic viewpoint or a single panel report on the ills of the minimum wage needs to be viewed within the vast spectrum of the economic literature.
It is noteworthy that while at least three business representatives were present on the minimum wage expert panel, conspicuously absent was any representation from the labour unions. This absence does not reflect neutrality or a level playing field where different interests are balanced. If anything, it indicates a pro-corporation and an anti-union bias.
Indeed, a whole panel was established on the NDP minimum wage which was announced well in advance to rise gradually over a period of three years from 2015 to 2018. In contrast, the UCP government brazenly dropped the corporate tax rate from 12 per cent to eight per cent in about a year from 2019 to 2020. Yet, there was no talk of any panel that would follow up on the efficacy of tax cuts to corporations based on the discredited trickle-down economics.
It is also noteworthy that when businesses like the Italian Centre complained about the minimum wage in 2019, they had no problems opening a fifth location in July 2021 despite a ravaging pandemic. What can one then say except to fall back to the father of economics for aid. Adam Smith’s words remain presciently true:
“Our merchants and masters complain much of the bad effects of high wages in raising the price and lessening the sale of goods. They say nothing concerning the bad effects of high profits. They are silent with regard to the pernicious effects of their own gains. They complain only of those of other people”.
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Nick Seebruch, editor
