In the wake of the Ontario NDP’s new economic plan, it is worth recalling Andrea Horwath’s proposal to save the Ontario working poor from greedy capitalists by raising the Ontario minimum wage to $12/hour, and to tie it to inflation thereafter. She argues that low-skill Ontario workers cannot make enough money to live off at Ontario’s current paltry $11/hour, and that it is necessary to get on the road to support a living wage (which $12/hour supposedly is, or something).
The Progressive-Conservatives counter that telling employers to pay more will only result in low-wage workers losing their jobs as the aforementioned greedy capitalists cut costs, raise prices and eliminate entry-level jobs. Following the PC logic, an increase would mean the currently unemployed will have an even harder time finding work in the future, the exact opposite of what was intended, -1 for socialism.
Luckily, there does exist 200 years of research on the matter, and while the economics may not be settled, there is plenty to help us make an informed decision. We’re here to give you the low-down. Politicians should probably read this too because spoiler: the minimum wage doesn’t fix everything. I know, shocking.
In recent times, proponents of raising the minimum wage contend that increasing the minimum wage puts money in the hands of the poor, which they will then spend, and thus cause the entire economy to grow faster enough to support this higher wage. As well, they argue that if there’s already an excess of workers or a shortage of jobs, that increasing the wage would have no effect on employment.
Opponents, however, would counter that it’s a band-aid solution to a bigger problem, and that it would be better to address job shortages and excess unskilled workers, by reducing regulations on businesses and making it easier for low-income individuals to gain skills and certifications, meaning less unemployment and hopefully more money for those who currently need it.
While Ontario specific data is hard to come by, a 2008 study by Debra Burke and Stephanie Miller compared geographically contiguous regions in American states that had different minimum wages and found a strong correlation between a higher legislated minimum wage and the region’s unemployment rate. That means higher minimum wages means more people sitting on their couches instead of going to work. Uh oh.
Even worse, a single minimum wage over a large territory pretends that everywhere is exactly the same, when different parts of the country, province, world, etc have different costs of living: right on average means wrong everywhere. Remember, we have some pretty distinct areas in Canada. Big urban cities and smaller industrial towns differ wildly, so if the point of a minimum wage increase is to support a living wage, it should be set at a provincial or even municipal level to not either ruin everything (for farmers in the middle of nowhere) or be completely useless (to fast food workers in NYC).
As well, even if the greedy bosses don’t fire everyone, they’ll raise prices before they dip into their pockets. After all, minimum wage workers are the people who shop at the places that employ minimum wage workers: discount stores, McDonald’s, places that try to keep costs (and thus prices) down. Next time you’re eating a hamburger at McDonald’s that cost less than money you can find in your couch, remember that these low prices depend on workers being paid very little. Take a moment and think about what a $1.30 double cheeseburger actually means, the work required! It doesn’t make any sense. It’s kind of beautiful.
Now, as for that whole “losing your job” thing, studies are mixed. When the wage is set in an individual setting (for example, a union successfully lobbying an employer to raise a minimum wage within a particular company), changes in hiring practices were statistically insignificant. However, minimum wage increases across varied industries led to sharply decreased employment among youth populations. Hudak would never admit that unions work, but…unions actually work.
But really, who even are the people who work at minimum wage? Where do they come from? Well, currently in Canada, only 4.6% of workers work at (or below) the minimum wage, of which only 20% are the “discount bacon take-homer” in the household (or just 0.92% of the overall working population). This is compared to the 62.5% of minimum wage earners who are living with parents or other relatives (or 2.9% of the overall working population). In fact, 65.7% of minimum wage earners are under the age of 24. In the US, 42 per cent of minimum wage earners live in households at least three times above the poverty line. As such, studies analyzing minimum wage increases in the United States since the 1990s predominantly finds that minimum wage increases have virtually no effect on the proportion of families at or below the poverty line. Raising the minimum wage mostly helps…teenagers. Who live with their parents!
The NDP might want to think about that. Effects to those below the poverty line would be restricted to the poor working at the minimum wage, and only a portion of the entire pool of the unemployed. Those who are working under the table or illegally, wouldn’t see any benefit. All of this is to say that if the goal is to help the poor overall, or the unemployed poor, there needs to be a better way.
Regrettably, raising the minimum wage is far easier than drafting actual policy solutions, and it is likely that if Horwath is to win, she’ll take the easy route. Wynne raised the minimum wage last year (in fact the $11/hour only takes effect this summer), and Hudak hasn’t proposed any welfare provisions at all. Every plan put forward thus far seems designed to energize a base and ensure election, rather than actually solve Ontario’s problems. This election should not be a debate over whether or not to pursue watered down, likely ineffective options, but a debate of ideas. Policies such as tax credits for families below the poverty line aid poor families without (potentially) adversely affecting youth employment and/or the overall employment rate, while also being of benefit to the unemployed, and not damaging their chances at finding work. If politicians were working at minimum wage we’d understand why they’re so focused on it, but they’re not, so we don’t.