Raising the minimum wage: good politics, bad economics?


Northern Ontario’s independent think tank, the Northern Policy Institute (NPI), released a report this month that says raising minimum wage is good politics, but not necessarily good economics.

“Minimum wage increases are politically appealing as they tend to be rationalized as an anti-poverty tool,” reads the report, which was compiled by University of Toronto economics professor, Morley Gunderson. “The image is often portrayed of a poor person working full-time at the minimum wage but earning less than a poverty line level of income. Thus, the ‘upside’ of a higher minimum wage seems immediate and apparent – higher wages for low-wage persons. However, the more subtle and less visible subsequent negative effects – the most notable being adverse employment effects – are largely downplayed in public discourse.”

The report says raising the minimum wage may encourage employers to implement hiring freezes, and reduce new hiring and job opportunities for low-wage workers. It says it may also cause the proliferation of self-service gas pumps, checkouts, and cafeterias; fast food automation; pre-packed food to replace food handlers in stores; increased online purchasing to replace retail clerks; more off-shore outsourcing; and cause employers to have to reduce their output in response to higher costs, which would slow growth.

Raising the minimum wage may also reduce training opportunities for workers, says the report.

“Most minimum wage jobs are stepping-stones for youths who acquire experience and on-the-job training that enables them to advance to higher paying jobs. It is ironic that we ban such a trade-off of firms providing training in return for paying low wages, but we often encourage unpaid internships to allow youths to acquire training and experience that will help them in future career opportunities.”

On June 1, the Ontario government increased the provincial general minimum wage from $10.25 to $11.00, bringing it in line with Nunavut as one of the two provinces with the highest minimum wage in the country. It was the first increase to the minimum wage since 2010. Premier Kathleen Wynne called it a “fair adjustment” that reflects the rise in the Consumer Price Index.

The province’s decision was influenced by advice from anti-poverty groups, but many of those groups still say the increase isn’t enough.

“We need a minimum wage of $14 to bring workers and their families above the poverty line (by 10%) and a commitment to annual cost-of-living adjustments,” reads the website of the “Raise the Minimum Wage” campaign.

Campaigners say the $11 minimum wage leaves full-time workers living 16 per cent below the poverty line.

“We are all struggling to live on the minimum wage. When you go to the grocery store, food prices are way up. Rent is increasing every year. We are hard working people. But with the current minimum wage, it’s either you go hungry or pay the rent,” said one member of the Workers’ Action Centre.

A new Statistics Canada study shows that the average minimum wage across Canada went up by one cent from $10.13 to $10.14 in real dollar terms between 1975 and 2013.

The Wynne government has introduced legislation that would tie future minimum wage increases to inflation starting in October 2015.

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