Our newest Minimum Wage Fact Check story analyzes an opinion piece published in the Financial Post. The author of the piece argues that a higher minimum wage disproportionately hurts young people.
This is a beloved conservative talking point: the minimum wage has a “disemployment effect” among young workers. Unfortunately for them, it is not supported by evidence.
Let’s look at the facts.
1) The author worked at a rightwing think-tank
The Financial Post makes a major omission, failing to mention the author of this column worked at the Fraser Institute.
The Fraser Institute is a rightwing think-tank that publishes dubious and misleading “studies” to promote an anti-worker, pro-corporate agenda.
The Fraser Institute is bankrolled in part by rich conservatives. One of their benefactors is the Koch brothers, a shadowy, far-right Republican family that pushes millions of dollars into pet political projects like the Fraser Institute.
The author’s history as a right-wing shill doesn’t immediately discredit his argument, but it does offer perspective on his ideological bias.
2) Lower wages does not mean businesses will hire more workers
The author deploys the demand curve to argue that lower wages will cause businesses to hire more workers:
But if demand curves sloping downward is so trivial, why is there such a fuss when we apply the notion to the labour market? If you lower wages, however unprogressive that may sound, businesses will want to hire more workers. Non-businesses, like charities, NGOs and non-profits, will, too. Anyone with a budget will find it goes further when the price of labour is lower.
Economists use supply and demand curves to construct simple models of the economy. But virtually all economists acknowledge that reality is more complex than their models.
In this case, we can introduce another factor into the equation: the effect of lower wages on consumer demand. As workers’ income drops, their ability to purchase consumer goods also falls. Demand decreases, and businesses find themselves with fewer customers and sales. This, in turn, causes them to lay off workers.
As you can probably guess by this point, hypothetical supply and demand models can be used to argue for almost any policy outcome. A better method is to look at actual economic data. This points to a clear conclusion: higher minimum wages (set at a reasonable level) do not have a disemployment effect. For example:
- The Canadian Federation of Independent Business claimed a higher minimum wage in Alberta in 2015 would kill between 53,500 and 195,000 jobs. It didn’t happen, and Alberta’s job market is among the strongest in Canada.
- Seattle’s minimum wage increase had zero effect on job numbers.
- 78 years of minimum wage hikes in the US show zero impact on jobs.
Conservatives rely on economic voodoo with supply and demand models because real-world facts aren’t on their side.
3) A Canadian analysis of job losses is wrong
Mainstream media and rightwing economists pounced on a Bank of Canada report that painted a gloomy picture of job growth post-minimum wage hike:
What do the bank economists conclude? Yes, increases in minimum wages tend to be associated with reductions in employment, other things equal. But the coming wage increases are bigger in percentage terms (0.6 per cent) than the reductions in employment they’ll likely cause (0.3 per cent) so the net result is an increase in labour income.
Too bad for rightwingers, but that’s not what the study said.
Here are the facts:
- The study did not say 60,000 people would lose their jobs, it said there would be a small slowdown in job growth (that’s a big difference!).
- This slowdown represents just 0.3% of total employment, a minuscule number in the context of overall job growth.
- The study says the costs of a higher minimum wage are far outweighed by the benefits.
- The report used outdated models to come to their conclusion. Increasingly, these models are becoming discredited by most economists due to the unrealistic assumptions they make.
- The study disproportionately cites academics who are biased against a higher minimum wage.
For more information, click this link to learn more about the problems with this study.
4) Minimum wage earners are not rich kids
It’s a one-line throwaway by the author – “Many minimum wage workers are middle- and higher-class kids”. But it’s worth analyzing this because many rightwingers cite this as a reason why higher minimum wages aren’t necessary.
The first problem is the author uses zero data to back up his claim. If you’re going to make such broad statement, at least use facts.
Real data shows who actually earn a minimum wage. It turns out to be a wide cross-section of people, few of whom have rich parents paying their bills.
Ontario has one of the highest rates of minimum wage workers, with 11.6% of province-wide workers earning a minimum wage in 2016. Of those, 40% were over the age of 25.
The fastest growing group of minimum wage earners were adult employees belonging to an ethnic minority and adult employees who are new to the country.
The conclusion? There’s zero evidence that young, rich kids disproportionately benefit from a higher minimum wage.
5) Young workers are not at risk
The author’s final argument is that job losses will primarily impact young people.
But studies that analyze the effects of minimum wage hikes show that large job losses amongst young people are nothing more than a rightwing fiction.
As the National Observer points out, the author’s previous employer, the Fraser Institute, published a study on the minimum wage job losses that was wrong by a factor of 10:
In advance of B.C.’s 2011-12 minimum wage increase, the right-wing Fraser Institute published a report warning that the 28 per cent wage hike “could lead to over 52,000 job losses,” equivalent to a 16 per cent decline in employment for young workers under 25. That didn’t happen. University of British Columbia economics professor David Green examined this case and found that the employment rate for workers under 25 declined by 1.6 per cent between 2010 and 2013. That’s a mere one-tenth of the Fraser Institute prediction.
The data is clear: a fair minimum wage does not hurt young workers.
When it comes to the minimum wage, the Financial Post and its columnists ignore evidence, relying instead on intuition and feeling. Unfortunately for them, the facts don’t care about their feelings.