New study suggests increasing minimum wages don't lead to job losses

Canada Politics
New study suggests increasing minimum wages don't lead to job losses

The common refrain from conservatives is that raising a minimum wage is a job killer. 

Well, a new study pokes some pretty big holes into that theory. 

The Canadian Centre for Policy Alternatives  an Ottawa-based left-leaning think tank  reviewed minimum wage increases in all provinces from 1983 to 2012 and studied its affect on employment levels. 

What they found was that, in 90 per cent of the cases, there was “no statistically significant relationship whatsoever between a higher minimum wage and labour market outcomes in Canada.”

"In the overwhelming majority of cases, gradual increases in the minimum wage were not generative of negative labour market outcomes in Canadian provinces," notes the report. 

"Most fundamentally, employers never purchase labour as an end its own right. Employers hire workers in order to produce a good or service that is then sold into a product market.

"The demand for labour is thus a derived demand, which depends
entirely on the final demand for the product that labour produces.”

The study  one more robust empirical reviews of minimum wage ever done in Canada  was written by Unifor economists Jordan Brennan and Jim Stanford. 

In an interview with Yahoo Canada News, Brennan said that the study dispels myths propagated by those who are interested in keeping wages down. 

He claims that his empirical research shows that hiring decisions are primarily driven by macro economic conditions such as GDP growth.

"In 75 per cent of the cases [the link between employment and GDP growth] was very strong and a further 15 per cent of the cases it was moderately strong."

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Some aren’t buying it. 

Charles Lammam of the Fraser Institute remains resolute against minimum wage increases. In the past he’s written that Canadian studies show that a 10 per cent increase in minimum age will likely decrease employment for you between 3 to 6 per cent. 

"The independent, peer-reviewed, academic research on the effect of minimum wage increases in Canada is clear: higher minimum wages have negative effects on youth employment," Lammam, who hadn’t read the CCPA report, told Yahoo.

"The research also shows no effect on poverty reduction in part because most minimum wage earners do not belong to low-income households. They’re often young kids living with their parents or adults supplementing their spouse’s income.

Regardless, Brennan insists his study is thorough. 

"There have been dozens if not hundreds of studies certainly worldwide and even in North America," he said. 

"I don’t know of other studies that carve things up the way we did. The data stretches back three decades  so we get three full business cycles  and we looked at each province and then we carved the labour market into seven variables. And that seven variables times 10 provinces allowed us to run 70 econometric tests.”

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The CCPA study seems to mirror a 2013 U.S. study conducted by a progressive think-tank called the Center of Economic Policy and Research. The CEPR analyzed minimum wage increases in the U.S. and suggested that “modest minimum wage increases don’t have much impact on employment” because “the cost shock of the minimum wage is small relative to most firms’ overall costs and modest relative to the wages paid to low-wage workers.”

In the United States, President Barack Obama continues his push to gradually raise the federal minimum wage from $7.25 an hour to $10.10 by 2016.

The very divisive and polarizing debate has elicited great debate and even protests. 

While minimum wage debates don’t get the same attention in Canada, as they do in the United States, it could be an election issue in 2015. 

Last month,  Thomas Mulcair’s New Democrats introduced a a motion in the House of Commons, which would have reinstated a federal minimum wage, and increase it to $15/hour.

Even if the motion somehow had passed, it’s affect would have been limited — it would only apply to those workers who belong to a federally regulated industry such as banking, air transport and radio and television broadcasting.

But it’s at least the beginning of the conversation. 

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