Tuesday, April 19, 2011

Effect of Minimum Wage Increases on Employment

A new systematic review of the literature on the effect of minimum wages on employment rates (this time specific to young workers) is available. This research was conducted for the UK’s low-pay commission.

This review covers 12 countries (including Canada), which the reviewers divided into two categories: liberal market economies and coordinated market economies. Canada falls in the liberal market economy category. The report was not particularly kind to the Canadian research.

Overall, the gist of the report is that the employment effects (i.e., the number of jobs) caused by the introduction of a minimum wage or an increase of the minimum wage for young workers are very, very small and at the margins of statistical significance. Noted effects may also disappear as workers age.

This broadly accords with the more recent literature on the employment effect of minimum wage increases for adults. Basically, an increase in the minimum wage has little to no effect on employment rates.

From a policy perspective, what this suggests is that arguments against minimum wage increases because “it will drive up unemployment” are without any factual basis. Assuming those who make these arguments have bothered to do some rudimentary research (i.e., googled), we ought to then look beneath this argument for the real reason for their resistance to increasing minimum wages.

In Alberta, we have been waiting for the Minister of Employment and Immigration to act on a recommendation by the Legislature’s Standing Committee on the Economy to increase the minimum wage for half a year. One wonders when he will do something about the erosive effect of inflation on low wage earners—those who are predominantly female and poorly educated?

-- Bob Barnetson

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