The proponents and opponents of the minimum wage have once again locked horns, with the Fraser Institute releasing a study predicting negative consequences should the policy be implemented to raise it to $15 per hour by 2019.
The Financial Post highlighted some of the key findings of the report, with the conclusion that a wage hike of this magnitude could have adverse effects on both businesses and workers.
So which side is right? Should the minimum wage be drastically increased or not? And, more importantly, do we have assurances that this type of policy will actually help workers who are struggling to make ends meet?
Economists, for the most part, are ambivalent on questions that relate to how negatively a hike in the minimum wage would impact the employment of workers.
In the US, a poll conducted asking 42 prominent economists for their opinion on whether raising the federal minimum wage to $15 over five years would result in a lower employment rate for low-wage US workers found that 38% answered “uncertain.” About 21% thought it would result in a lower employment rate and 24% thought it would not.
While the economists are on the fence, we can start by predicting that one of three things will occur:
- Any worker who is worth $15 per hour and currently has a job will keep their job.
- Any worker who is not worth $15 per hour and currently has a job will be laid off.
- Any worker who is not worth $15 per hour and doesn’t currently have a job will not get hired.
It’s imperative to remember that as the cost of something increases the demand for it generally decreases. Labour is an input cost in virtually everything – the more expensive it is the less inclined businesses will be to hire.
Remember: the minimum wage is the law, but there is no law mandating businesses to hire or retain current employees. The Ontario government should proceed with caution.
Some will point out that one of the reasons jobs are lost is due to automation, as the President of Unifor, Canada’s largest private sector union, noted in the FP article. His response was to a statement from Ontario’s Financial Accountability Office, which concurred with the Fraser Institute’s findings that thousands of jobs could be shed should the increase be implemented.
“The reality is that 50,000 workers are not expected to lose their jobs,” said Unifor National President Jerry Dias in a release. “This figure is not a projection of actual lost jobs but rather a combination of estimates that includes potential, but not actual, future job creation and jobs lost to increased automation.”
What Jerry Dias does not realize is that automation is one of the consequences of a minimum wage that is raised too aggressively. As the cost of labour increases far above what the market can tolerate, business owners will be incentivized to invest more heavily in automation. Rapid increases in the minimum wage can accelerate the adoption of automation as the high cost of labour will make it more economically viable.
To play devil’s advocate, there has been no study that has proven beyond a reasonable doubt that raising the minimum wage in this manner will have deleterious effects on workers and the economy as a whole. We are in uncharted territory.
The only thing we an do is wait and observe – and keep our eyes out for the robots who would love to steal our jobs.