Labour Studies Index

Updated: 2019-04-26

Raising the Minimum Wage: Misguided Policy, Unintended Consequences

Document type Report
Author Lammam, Charles
Author MacIntyre, Hugh
Author Murphy, Robert P.
Date 2016 March
Pages 76 pages
URL https://www.sfu.ca/content/dam/sfu/labour/fairwagescommission/(Fraser%20Institute)%20Raising-the-minimum-wage-misguided-policy-unintended-consequences.pdf

Abstract

Proposals to increase the minimum wage have re-emerged in provinces across the country. For instance, the Alberta government recently pledged to hike the provincial minimum wage from $10.20 to $15 per hour by 2018, already taking the first step with a $1 hike effective October 1, 2015. There has been a similar movement to raise the minimum wage to $15 in various jurisdic- tions in the United States. Popular support for the minimum wage largely derives from the belief that it is a useful tool for boosting the wages of poor workers. However, the evidence paints a much different picture. For starters, the minimum wage does not effectively target workers in low-income households. In fact, 87.5% of Canadians earning minimum wage in 2012 lived in households above the Low Income Cut-Off (LICO), a widely used measure of relative poverty. Moreover, the vast majority of workers (83.4%) from households falling below the LICO threshold earned more than the minimum wage. These counterintuitive results follow from the demographic compos- ition of minimum wage earners. In 2014, 58.4% of those earning minimum wage were youths aged 15 to 24. Furthermore, 56.8% of all minimum wage earners were living with family, while 19.9% were married to a spouse who was also employed. Taken together, the data undercut the popular image of minimum wage earners being single breadwinners supporting a family. In fact, only 2.2% of those earning minimum wage were unmarried heads of household with at least one minor child. The tenuous link between minimum wage earners and poor house- holds makes the minimum wage a very crude method for targeting assistance to those who need it. At the same time, hiking the minimum wage can do considerable harm, most notably by decreasing employment opportunities among low-skilled workers—the very group the policy is designed to help. By making labour artificially more expensive, increasing the minimum wage may significantly reduce employment among teenagers and other groups of low-skilled workers. Besides reducing employment outright, hiking the min- imum wage could lead to a reduction in hours and other benefits (such as on-the-job training) for those workers who keep their jobs.