(Vancouver) In the wake of the BC government’s shockingly low 20-cent increase to the minimum wage, a new report suggests that such small changes fail to adequately reduce poverty and inequality, and are unnecessarily timid.
David Green, a professor and former chair of the Vancouver School of Economics at UBC and an International Fellow at the Institute for Fiscal Studies in London, conducted a thorough review of academic research on the economic impacts of minimum wages, and concluded that bold increases to the minimum wage make good economic sense.
“My goal was to assess what would actually happen if we went ahead and raised the wage to $15,” says Green. “In a nutshell, workers and their families would benefit a great deal, and any claims that we’d see massive job losses in low-wage sectors of the economy are just not credible.”
Among the paper’s key findings:
- The large job loss impacts predicted by some opponents of minimum wages misrepresent the existing economic research. In fact, estimates showing job loss effects of minimum wage increases apply only to teenagers. Estimated effects for young adult and adult workers are effectively zero.
- For example, in 2011, when the minimum wage increased from $8 to $10.25 over a year, the Fraser Institute claimed the increase would result in a staggering loss of over 52,000 jobs. In reality, employment for 15-24-year olds declined by 1.6 per cent, one tenth of the Fraser Institute’s projections. Their projections were based on old estimates and erroneously applied estimates for teenagers to young adults.
- An increase to $15 would likely result in a modest decline in the employment rate. However, the likely impact is less than a 1 per cent reduction in the overall provincial employment rate. Overall, those making less than $15 would still benefit from a substantial increase in their total wages.
- Focusing on teenage workers plays up an inaccurate stereotype about who earns very low wages in BC and leads to exaggerated claims about job losses. Only 26 per cent of those currently making between $10.25 and $12 are teenagers, and only 5 per cent of those making between $12 and $15 are teenagers.
- The evidence for Canada suggests that higher minimum wages lead to lower turnover rates, meaning workers are more likely to have higher-paying and more stable jobs. This may be because a higher minimum wage reduces the incentive for firms to operate on a low-wage, high-turnover model.
- At the current minimum wage, a full-time worker remains below the poverty line. The minimum wage can be an important tool for reducing poverty and income inequality – so long as it is high enough to lift workers out of poverty.
The Case for Increasing the Minimum Wage: What does the academic literature tell us? is published by the Canadian Centre for Policy Alternatives’ BC Ofice.
For more information or interviews with David Green, contact Sarah Leavitt at 604-801-5121 x233 or sarah at policyalternatives dot ca.