Increasing the minimum wage does not drive up unemployment levels, according to a three-decade study published Tuesday.
The Canadian Centre for Policy Alternatives (CCPA), a left-leaning think tank, says it found no consistent connection between raising wages for workers at the bottom of the payscale and employment levels in all ten provinces between 1983 and 2012.
Instead, trends in unemployment are determined by larger economic factors, including GDP growth and the level of consumer spending, according to the report produced by the CCPA and economists from Unifor, Canada’s biggest union.
The findings run counter to the economic theory that higher minimum wages force employers to hire fewer workers or ultimately move to an area with cheaper labour.
The argument goes that imposing a high minimum wage interferes with the labour market by forcing employers to pay workers more, making it more expensive and therefore reducing demand for employees, the argument goes.
But the CCPA and left-leaning economists believe that argument doesn’t hold water.
“Those with a vested interest in keeping wages down have exaggerated the alleged disemployment effects of raising the minimum wage,” said Unifor economist Jordan Brennan.
“But there is no consistent evidence in aggregate employment data that any such disemployment effect exists.”
The report’s authors found no statistical connection in 90 per cent of cases studied between higher minimum wages and labour market outcomes in 90 per cent of cases they studied. In the cases where there was a connection, they found higher wages were equally likely to lead to higher employment as to reduced employment levels, the authors found.
Critics argue that an extra dollar per hour to each employee would reduce profitability. Employers might have to offset the cost of higher wages by raising prices and cutting staff.
The report’s authors argue that raising minimum wages actually heightens individuals’ purchasing power, spurring people to spend more. That in turn stimulates the economy and therefore the job market.
“The stagnation of overall wage levels has contributed to the weak demand conditions holding back Canada’s economy, and increasing the minimum wage would in fact help to address that weakness,” said Unifor economist Jim Stanford.
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The findings are in line with a famous 1990 study in the U.S. that compared fast food employment in New Jersey and Pennsylvania, after New Jersey raised its minimum wage. There was no significant difference in employment levels.
In Canada, the cost of living has outstripped wage growth in recent years and income inequality rising, while consumer debt-to-income ratios are at an all-time high. A hike in minimum wages would help boost the fortunes of the lowest paid employees, reduce debt-to-income ratios, and serve as an anti-poverty measure, the report said.
Debates over raising the minimum wage are pervasive in Canada as well as in the U.S. and the U.K. Ontario has the highest minimum wage among the provinces after raising it to $11 an hour in June and indexing future annual increases to consumer price inflation levels. New Brunswick has the lowest minimum wage, at $10 an hour. That’s still much higher than the U.S. federal minimum wage of $7.25 per hour.