Three Facts Minimum-Wage Loyalists Ignore

Commentary, Economy, Fergus Hodgson

Minimum wages are on the rise again in Ontario. As of October 1, the province’s incessant central planners have not one but six higher price controls for labour.

These hurt the most vulnerable Canadians and do the bidding of unions. However, vociferous proponents delude themselves into thinking they have the moral high ground and are helping people. This delusion rests on glaring blindspots.

One such advocate, writing for BlogTO, offers a comical straw man: “Despite what online pundits will have you believe, the minimum wage increase will not make the cost of a fast-food burger triple in price.” Filipe Dimas also quotes Torontonian Jermaine Jupiter with the sob story that people cannot afford to live in Canada’s largest urban center on $14 per hour.

Dimas and Jupiter are right on their own terms, and the 38 commenters on Dimas’s article by and large take the bait. If Dimas, Jupiter and their kin care for the downtrodden and not just virtue signaling, though, they will face up to a few economic truths. As Marc Law of the University of Vermont has written, “the adverse economic impacts of the minimum wage have been extensively documented.”

  • The minimum wage reduces jobs available.

If something costs more, do you buy more of it? No. That foundational law of demand applies to paying for labour and is why price controls create distortions and under-the-table commerce. The minimum wage is a price floor that constrains demand for labour, since a firm will not hire someone who costs more than he is worth.

Jupiter claims one needs about $35 per hour to live in Toronto. Let us raise the minimum to $35 and see how many jobs are still available. Why stop there? How about $100 per hour? How about we mandate that all people in Honduras also make at least $100 per hour to cure their poverty (with earnings of about $300 per month)? That is the reduction to absurdity for those who believe government can magically generate higher wages by declaring them so.

“There is near unanimity among researchers that higher minimum wages cause employment losses in Canada,” writes Philip Cross of the Fraser Institute. The rising proportion of Canadians on the minimum wage—doubling in the last 20 years to over 10 per cent and 15 per cent in Ontario—indicates the deepening damage done to employment opportunities.

  • The minimum wage hurts the young and low-skilled.

When young, we pay other people to learn skills and, once trained, expect to earn a higher income in return. Low-wage work, like unpaid internships, covers the in-between phase in which someone is both providing a service and garnering training. Often the intern adds little value and cannot command a wage, but the return will appear later in higher value added and thus higher wages. Restrictions on unpaid or low-paid work snuff out valuable learning opportunities.

Young and low-skilled workers are most vulnerable to reduced employment because the minimum wage prices them out of the market. This empowers unions by reducing competition from nonmembers. The fact that Ontario has a lower minimum wage for students—85 cents less per hour—is an implicit acknowledgement that a lower wage is for their benefit.

Another acknowledgement regarding the minimum wage’s dampening effect on experience comes from the Summer Jobs program. The federal government literally pays employers to take on people up to age 30 who would otherwise not be employable at the minimum wage, knowing they need somewhere to get started. The subsidies, which are bureaucratic, expensive and politicized, disguise the harmful impact of minimum wages on the young.

  • Most minimum-wage earners are not household breadwinners.

The trope that one cannot provide for a family on the minimum wage, whatever it may be, ignores the fact that in life we raise our earning capacity over time. Cross has pointed out that “Most people earning a minimum wage belong to households earning higher incomes, so most of the [mandated higher wage] does not go to low-income people.” In other words, they tend to be people just getting started and living within homes that can already provide for themselves. The majority are in the 15–24 age group.

As higher education’s signaling value becomes diluted, that includes more people with postsecondary education but few job skills and little to distinguish themselves. Their presence underlines their lack of work experience earlier in life and the need for more unpaid or low-paid internships and apprenticeships. More young people are coming out of university green and having to move back in with their parents.

These economic insights are particularly prescient given that Canada’s economic growth in the 2010s was the slowest since the 1930s, while small businesses are awash with debt and capital investment has dried up. Ontario’s 7.4 per cent unemployment rate is two per cent higher than the U.S. rate, and the province is poorer than all U.S. states in the Great Lakes region.

Saddling more burdens on businesses, small and large alike, hurts them and those they employ, and it leaves less available for precious reinvestment. Ever-higher minimum wages are pricing out more people and reducing economic opportunity, all while doing zero to raise productivity and workers’ power to command higher wages on the open market.

 

Fergus Hodgson is a research associate with the Frontier Centre for Public Policy.

Photo by Kampus Production from Pexels.