Does raising the minimum wage = job losses?

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Recently Ontario has decided to raise its minimum wage from $10.25 to $11, a full 16 per cent below the poverty line. While the hundreds of thousands of Ontarians who try to subsist on minimum wage are no doubt lining up to thank the benevolent Premier Wynne for inching them that much closer to actually being able to arise from abject poverty through full-time employment, the praise has not been unanimous.  

The Ontario PCs, the Canadian Federation of Independent Business (CFIB) and the usual suspects for the 1% have been wringing their hands and wailing about how terrible the notion of increasing the minimum wage by $0.75 is. The CFIB claims that increasing the minimum wage hurts minimum wage workers "by reducing the businesses' capacity to hire and retain them." In fact, the CFIB predicts that a 10 per cent increase in the minimum wage would trigger up to 321,000 job losses.

So is this, in fact, true? Does increasing the minimum wage = job losses?

Happily, Ontario has some recent history to rely on in answering this question. The province raised the minimum wage four times between 2007 and 2010, from $7.75 to $10.25 an hour. According to the foes of minimum wage increases, there should have been job losses every year as a result. But in fact, year-to-year unemployment rates stayed the same or decreased in Ontario in each of those years with the exception of 2009, the year of the economic downturn. 

A better example might be Québec, which raised its minimum wage for nine consecutive years between 2005 and 2013, increasing the rate from $7.45 to $10.15 during that period. Out of those nine years, unemployment increased just once -- again in 2009.

How about the booming Wild West provinces of unfettered capitalism: Alberta and Saskatchewan? Alberta's minimum wage went from $8 in 2007 to $9.95 in 2013. In all those years, unemployment either went down or remained steady with the exception of 2009. During the same 2007 to 2013 period, Saskatchewan's minimum wage rose from $7.55 to $10 an hour while its unemployment rate only increased once, in (you guessed it!) 2009.

Meanwhile, B.C. broke its multi-year freeze on minimum wage, increasing it from $8 in 2011 to $10.25 in 2012. Surely this shocking 26 per cent increase in the minimum wage over such a short period of time broke the backs of businesses with minimum wage jobs and sent British Columbians to the EI and bread lines. In reality, unemployment decreased by nearly a full percentage point.

Another way to look at the data would be to line up the provinces according to minimum wage rates and compare their unemployment levels. If the cheerleaders of the free market are correct about the devastating effects of minimum wage increases on jobs, one would expect to find the highest unemployment in provinces with the highest minimum wages. But out of the four provinces with above-average minimum wage rates in 2012, only one had higher-than-average unemployment (Nova Scotia). Conversely, just two of the five provinces with below-average minimum wage rates in 2012 also had below-average unemployment rates for that year (Alberta and Saskatchewan).

There are two possible explanations here:

1. The minimum wage rate has much less of an impact on job numbers than other economic factors like a booming resource sector or a collapsing manufacturing sector or global economic downturn (in which case, the argument that minimum wages increases = job losses must be cast aside).

2. Increasing the minimum wage actually has a positive effect on job creation. This may seem counter-intuitive, but consider this: people earning a higher minimum wage are more likely to spend more of their money than they save because they're less stretched to meet their basic needs. That increase in spending gets plugged into the local economy. Also, consider the kinds of jobs that make up the majority of the minimum-wage sector: service and retail. You can't really pack up most of those jobs and move to a region with lower minimum wages like you could with a manufacturing plant, for example.  

Regardless of the explanation, the numbers are clear: increasing the minimum wage does not increase the unemployment rate. Anyone claiming otherwise appears to be misinformed or lying.  


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Todd Ferguson used to work full-time for $5.50 an hour.

Photo: flickr/duckiemonster

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