Hiking the minimum wage breaks the first rule about making policy to help the poor. It hurts the poorest, least skilled, and least employable — the very people it’s supposed to help.
My friend and former colleague Fergus Hodgson highlights recent study findings on the minimum wage in Canada. To cut to the chase, it seems even our gentle neighbors from the North cannot persuade labor demand curves to slope upwards.
Politicians often turn to minimum-wage hikes when pressed by constituents to “do something” about poverty. However, recently published data from British Columbia, gathered by the Fraser Institute, demonstrates that those impacted are unlikely to even be from poor households.
BC Premier John Horgan plans to raise the hourly minimum wage to CAN$15.20 (US$11.76) by 2021 from the current $11.35—a 34 percent increase. Director of Fiscal Studies Charles Lamman and Senior Policy Analyst Hugh McIntyre looked at who the proposed recipient workers would be. They found that most minimum-wage earners are young, inexperienced workers living with their parents, a far cry from the caricature that turns up in progressive campaigns.
“In 2015, the latest year of available income data, 15.7 percent of minimum-wage earners in British Columbia, lived in a low-income family. In other words, 84.3 percent—or more than four out of five—of British Columbia’s minimum-wage workers did not live in low-income families.”
This observation is in line with other Canadian studies (PDF) that have found no significant anti-poverty effects of past minimum-wage hikes. Of those employees who maintained their positions, or did not miss out on jobs that failed to materialize, the extra income simply went to families that were already above the poverty line.
As discussed here, Pew Research Center made similar findings in 2014:
“Perhaps surprisingly,” the report stated, “not very many people earn minimum wage, and they make up a smaller share of the workforce than they used to.”
Only about 2.6 percent of the nation’s workforce are paid at or below the federal minimum wage. Slightly over half of them are between the ages of 16 and 24, and about one-fourth are between the ages of 16 and 19 — which means they are new to the work force, often unproven, and often not educated beyond high school. They are getting startup wages because they are startup workers. Nearly four out of five are white, and half are white women. About two-thirds work part-time.
As Hodgson points out, the problem goes beyond low-income families not actually receiving the wage benefits advocates were expecting:
Minimum-wage legislation harms job seekers with no skills and whose main competitive advantage is a willingness to work for less. The Fraser Institute report cites 20 Canadian studies on the minimum wage from academic journals, none of which support the idea that increasing the minimum wage is good for non-skilled workers.
Not that there was any reason to believe academic research would overwhelmingly support such an idea, which is counter to mainstream economics.
If you wanted to hear something to “support the idea that increasing the minimum wage is good for non-skilled workers,” you’d need to look for self-appointed “morality” demagogues and fawning media reports about them.
Otherwise, you’d have to consider what it means to price teenagers and nonskilled workers out of work:
It’s already been shown that higher minimum wages are associated with fewer teens holding jobs. The new study, by David Neumark and Cortnie Shupe, found that higher minimum wages led to fewer teens aged 16–17 combining school and work. A higher share of teens merely went to school.
This meant that a higher share of teens acquired fewer job skills, reduced their future employment opportunities, and lowered their lifetime earning. What Neumark and Shupe describe is a snowball effect: less work, fewer skills acquired, less overall employability, fewer later job opportunities, lower overall lifetime earnings.