THE BLOG
05/26/2011 08:08 EDT | Updated 07/26/2011 05:12 EDT

B.C.'s Minimum Wage Hike Could Cost More Than 52,000 Jobs

B.C.'s minimum wage increase kicked-in on May 1. It's too bad the raise comes at the expense of other workers who will now lose their job as a result.

The first of three increases in B.C.'s minimum wage kicked-in on May 1, and while it will undoubtedly be welcomed by workers currently earning the minimum, it's too bad their raise comes at the expense of other workers, who will now be unable to find a job or will lose their job as a result of the wage hike.

The unpleasant reality is, minimum wage hikes are a job-killer that hurt the very people they are intended to help.

Shortly after taking over as premier, Christy Clark said her government would "focus on job creation in our province" but the $2.25 (28.1 per cent) increase to B.C.'s current minimum wage will do the complete opposite.

"I don't think it will cost jobs," she said regarding the minimum wage hike. Premier Clark may indeed believe so but the hard facts tell a different story.

A voluminous body of academic research has found that minimum wage hikes increase labour costs for employers, who then respond by reducing the number of employees and/or the number of hours their employees work.

A comprehensive review of more than 100 academic studies on the effect of minimum wages in 20 countries -- conducted by internationally recognized minimum-wage experts Professor David Neumark of the University of California and Dr. William Wascher, a U.S. Federal Reserve Board economist -- found that the "overwhelming majority" show that minimum wage increases have negative employment effects.

The evidence from Canada shows much of the same. Fifteen academic studies have examined the impact of minimum wage increases in Canadian provinces. Based on these studies, a 10 per cent increase in the minimum wage is likely to decrease employment by up to 20 per cent among young workers who, prior to the minimum wage hike, were paid between the existing level and the new higher minimum wage level.

Based on the Canadian research, the planned increase in B.C.'s minimum wage to $10.25 per hour could result in more than 52,000 lost jobs for young workers (15-24 years olds). This is unfortunate given that the unemployment rate for these young workers is nearly double (at 15.2 per cent) the overall unemployment rate in British Columbia, at 8.1 per cent.

In addition, the phased-in increase (three 75-cent increases over the next year) will not reduce the adverse employment impact of the minimum wage hike. The overall increase is too large and the time period is too short for these effects to be mitigated. A study by University of Toronto Professor Michele Campolieti published in the Canadian Journal of Economics examined the impact of minimum wage increases on jobs in the Canadian provinces from 1993 to 1999 and found that a 10 per cent increase in the minimum wage decreased employment for affected workers by 10 per cent to 20 per cent. He then examined the impact of B.C.'s two 50-cent minimum wage increases in 1995 and found that these consecutive increases reduced employment among directly affected workers by between 20 per cent and 40 per cent, approximately twice the magnitude of his national findings.

Some advocates of the minimum wage increase claim that employers won't reduce employment since the increase to $10.25 is simply an adjustment to reflect the inflation that has occurred since 2001. But that assumption is wrong. First, prices in B.C. have only increased by 16.5 per cent since 2001, while this minimum wage hike is a 28.1 per cent increase. Secondly, employers make decisions about how much labour to utilize based on current labour costs. If those costs increase, employers will reduce the number of employees they use and/or the number of hours their employees work.

Proponents of the minimum wage increase also ignore the fact that workers don't earn the minimum wage for their entire working life; those currently earning the minimum wage aren't the same workers who were earning the minimum wage 10 years ago. Research shows that after one year, approximately 60 per cent of minimum wage workers earn more than the minimum wage, with a typical wage gain of about 20 per cent. After two years, the percentage of workers earning more than the minimum wage increases to 80 per cent.

The B.C. government has indicated that it will focus on job creation in B.C. If that's the goal, it should reconsider the recent minimum wage hikes.

Niels Veldhuis and Amela Karabegovic are economists with the Fraser Institute. They are co-authors of Estimating the Economic Impact of British Columbia's Minimum Wage Increase, available for free at www.fraserinstitute.org.