Alberta’s $15 Minimum Wage Doesn’t Help Workers

Commentary, Economy, Matthew Lau

During the recent Alberta election campaign, with the province’s unemployment rate remaining stubbornly high relative to the rest of Canada with the exception of the Atlantic provinces, the now-governing United Conservative Party proposed reducing the minimum wage from $15 to $13 for workers below the age of 18.

The benefits of this less restrictive wage floor for younger workers are clear. As a 2014 study by University of Toronto labour economist Morley Gunderson concluded, the “Canadian evidence has shown that a 10% increase in the minimum wage would lead to a 3% – 6% reduction in the employment of teens.”

The corollary is that reducing the wage floor for teenagers under the age of 18 would increase the job opportunities available to them, giving them the work experience they need to climb the economic ladder.

Indeed, many jurisdictions around the world have a lower minimum wage for young workers, making it easier for them to find their first jobs. The unhappy flip side, however, is that as workers get older they lose the benefit of the less restrictive wage floor, which reduces their employment opportunities.

In the Netherlands, the minimum wage is phased in when a worker turns age 15, and is increased every year on the worker’s birthday until age 23, when they become subject to the full “adult” minimum wage. Younger workers do indeed benefit from the reduced minimum wage as it makes it easier to find jobs. But as their birthdays approach and a higher wage floor is about to kick in, there is an increased risk of job loss.

A 2015 study circulated by the Germany-based Institute of Labor economics analyzed the effect of the Dutch minimum wage, and concluded that there was “a significant increase in the probability of job separation” for young workers in the months closest to their birthday when they would be subject to a higher minimum wage.

This phenomenon was captured in the title of the study: “Happy Birthday, You’re Fired! The Effects of Age-Dependent Minimum Wage on Youth Employment Flow in the Netherlands.”

Similarly, in Denmark, there is a very dramatic change in the employment opportunities for young workers when they become subject to a higher minimum wage. (While there is no statutory minimum wage in Denmark, there is effectively a minimum wage as a result of union and other agreements).

As a recent study by economists Claus Thustrup Kreiner, Daniel Reck, and Peer Ebbesen Skov explained, when a worker in Denmark turns 18 they are subject to a 40 percent increase in the minimum wage. The result? “Employment falls by 33 percent and total input of hours decreases by 45 percent.”

Similarly to the Dutch minimum wage, the Danish study found that the employment rate of workers, by age, rises steadily until a few months before age 18, at which point the employment rate declines markedly. At age 18, when the workers become subject to a higher minimum wage, the employment rate is sharply cut by one-third.

In Alberta, the decline in employment when workers reach age 18 would likely be less severe, since the minimum wage jump from $13 to $15 represents an increase of 15 percent, compared to the 40 percent increase in Denmark. Yet the experiences of Denmark and other jurisdictions show that the positive employment effects of a lower minimum wage should be extended to all workers, not just those under a certain age.

The Alberta government is taking a step in the right direction by making it easier for the youngest workers to find their first job. However, being penalized with a wage floor hike that increases the risk of joblessness is a crummy way for workers to ring in their 18th birthdays. To reduce unemployment across the board, the minimum wage cut should be for workers of all ages.