This is a cross-post by Angella MacEwen, an Economist at Canadian Labour Congress and a Broadbent Policy Fellow.
The Alberta government has done it.
On October 1st, the minimum wage increased by one dollar to $12.20 per hour, making it the highest provincial, but not territorial, minimum wage in Canada.
In 2017 it will rise to $13.60, and finally to $15 in October 2018, meeting a key election campaign promise made by Rachel Notley’s NDP.
Whenever governments consider increasing minimum wages, outspoken opponents argue that higher minimum wages kill jobs, and hurt low-wage workers. This argument is presented regardless of the level of the current minimum wage, the amount of the increase proposed, or the state of the macro economy.
The fact is, as the minimum wage has increased in several provinces across Canada in the past few years there has been virtually no impact on employment or hours worked for those over 20, and only a small effect for workers aged 15-19. Moreover, many economists argue that higher minimum wages can be good for increasing job stability, reducing poverty, and providing needed stimulus to the economy. It’s worth taking a closer look at these three key issues.
The public has been told that higher minimum wages kill jobs, but there’s growing evidence that increasing the minimum wage helps create good jobs. Canadian research published in The Economic Journal shows that increasing the minimum wage may be a key path to creating better and more stable jobs for low-wage workers.
How does that work? It turns out that higher wages provide an incentive for employers to invest in their current workforce. Better training and higher wages mean lower employee turnover, a more stable job for workers, and a more productive workforce for employers.
On the point of poverty reduction, critics have argued that increasing the minimum wage is misguided because not all minimum wage earners are working poor. But minimum wage earners are more likely to be working poor than higher wage earners. And there is now clear evidence that recent increases in minimum wage actually reduced income inequality in Canada, and that the trend for the bottom 10% of income earners is closely linked to changes in the minimum wage.
No single policy can eliminate poverty and inequality by itself, but fairer wages are a key component in addressing this issue. Higher minimum wages also work well in concert with other programs such as an expanded Working Income Tax Benefit (WITB), a tax credit that supplements employment income for low income workers.
Finally, research in the United States has shown that increases in the minimum wage lead to significant increases in household spending, which has a stimulative effect on the economy. This makes sense, if we consider the fact that many low-wage workers currently can’t make ends meet. Put differently, low-wage workers are more likely to have un-met basic needs, and so spend their extra income right away.
In Alberta, this increase in the minimum wage is long overdue. Alberta has among the highest costs of living in Canada, and even after the devastating economic impact from the drop in oil prices, Alberta has the highest median wage in Canada (half of workers make more than the median wage, half make less). As wages for middle income workers grew during the boom, minimum wages stagnated, leaving the lowest paid workers behind.
With the wage increases, this will finally change. Over the next couple of years, hundreds of thousands of workers that have been left behind in Alberta will be getting a raise. And they’ll be spending that money in local grocery stores and at local restaurants.
Compare this to Saskatchewan and British Columbia, which have the second and third highest median wages in Canada, and among the lowest minimum wages. Last month BC’s minimum wage increased by a mere 40 cents to $10.85, and on October 1st Saskatchewan’s will increase by only 22 cents to $10.72. Living costs have grown faster than the minimum wage in both those provinces, leaving workers struggling to make their meagre cheques stretch farther.
Finally, the Alberta government has provided clarity for workers and employers by setting out a schedule of gradual increases, and laying out the path to a $15 minimum wage by 2018.
This is the kind of bold leadership needed in the rest of Canada to make headway on combating inequality, poverty and to create the conditions for a growing economy that benefits everyone.