Economy

Ask Our Northern Neighbors Whether Higher Minimum Wages Kill Jobs

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Opponents of a minimum wage hike in the United States usually warn that it will hurt employment growth. But that doesn’t seem to be the case for our neighbors in Canada.

A new study from Jordan Brennan and Jim Stanford for the Canadian Centre for Policy Alternatives examines the relationship between jobs and minimum wage increases in all ten of Canada’s provinces between 1983 and 2012. They find “almost no evidence of any connection whatsoever between higher minimum wages and employment levels in Canada.” When they did find a connection, “it is almost as likely to be positive as negative,” they write, meaning that a higher wage was just as likely to be find to boost jobs as to hurt them. They find that rather jobs are “overwhelmingly” determined by other factors, such as demand and GDP growth, and not the minimum wage.

The two conducted 70 tests to come to their conclusion, examining the relationship between the minimum wage and seven different factors for each of the 10 provinces. They looked at the overall employment rate, the employment rate as a share of the working-age population, the unemployment rate, as well as the employment and unemployment rates for young people ages 15 to 24 and employment in the minimum-wage retail and hospitality industries. “[I]f minimum wages had any significant impact on broader labour market performance, it should be visible” in these tests, they write.

But 90 percent of their tests didn’t find any statistically significant relationship between a higher wage and any of these factors, even for the young workers or those in industries that opponents of a minimum wage increase worry about the most. “This suggests that in the overwhelming majority of cases, gradual increases in the minimum wage were not generative of negative labour market outcomes in Canadian provinces,” they write. Seven tests showed a relationship between the wage and employment, but three were positive –an increase in the youth employment rate in Ontario and a boost to overall employment as well as the employment rate in Saskatchewan — while four were negative.

This trend appears to be continuing today. This is the first year in which every Canadian province has set its minimum wage at or above 10 Canadian dollars an hour, with the average at C$10.37. That’s about a 25 percent increase from the beginning of 2009, when the average was C$8.26. Over that time, the country’s unemployment rate has steadily declined. And even the province with the biggest increase — British Columbia, which raised its wage from C$8.75 to C$10.25 between 2011 and 2012 — saw its rate drop nearly a full percentage point during that time. That doesn’t imply a higher wage caused lower employment, but does indicate that it didn’t hurt jobs.

What happens in Canada may not be directly applicable to what happens in the United States. But there has been similar evidence here of what would happen to jobs if we increased the minimum wage. An influential study from 2009 that reviewed 64 studies on the impact of a higher wage on employment found they averaged out to close to zero, and the most statistically precise ones were the most likely to find no impact. American economists have also looked at state-level minimum wage increases and how they impacted employment and found no effect.

Recent on-the-ground evidence backs this up. Between January and May of this year, states that raised their minimum wages on January 1 have experienced faster employment growth than states where it didn’t go up. Washington, the state with the highest wage, has seen steady job growth above the national rate in the 15 years since it raised its wage. It was at the top of the list this year of states that saw the biggest increases in small business employment.

The United States’s minimum wage hasn’t been raised in five years and has lost so much of its value to inflation over the years that it would be at $10 an hour if it had kept up. Many states have increased their own wages, however, with ten doing so this year.