Minimum Wage Hikes Result in Fewer Jobs for Youths

Government policies focusing on economic growth pay bigger dividends than income redistribution
By Rahul Vaidyanath, Epoch Times
September 11, 2019 Updated: September 11, 2019

News Analysis

Past government efforts to help lower-income Canadians through minimum-wage hikes and child benefits are proving less effective than planned. Better economic growth remains the best antidote to low income, says Philip Cross, Macdonald-Laurier Institute senior fellow and author of the think tank’s Labour Market Report.

In January 2018, Ontario raised its minimum wage 20 percent to $14 per hour. Basic economic theory argues that this would reduce job opportunities for young people; as the cost of labour rises, firms can’t afford as much of it unless they raise their prices or make do with lower profit margins. Ontario is highly dependent on minimum-wage workers and was embarking on a controversial experiment.

Similarly, Alberta raised its minimum hourly wage to $15 in October 2018, which remains the highest minimum wage in Canada.

Cross reports that, as expected, youth employment has weakened in Ontario and Alberta after the minimum-wage hikes. In Ontario, employment for those aged between 15 and 24 fell by 8.8 percent in the first five months of 2018.

“This is another example of the failed attempt by the former government to manage better labour market outcomes in Ontario,” Cross wrote. By July 2019, there were still 2.1 percent fewer jobs for Ontario’s youth, and their unemployment rate remains at an elevated 12.9 percent. The national unemployment rate is 5.7 percent.

In Quebec, where the minimum wage is $1.50 per hour lower than Ontario’s, the youth unemployment rate is 8.0 percent.

Alberta’s youth have suffered a similar fate to those of Ontario’s. Jobs held by those aged 15 to 24 years old fell 12.0 percent over the two months after the minimum-wage hike. By late June 2019, when the Kenney government lowered the minimum wage to $13 per hour for students under 18, Alberta’s youth employment was still 8.8 percent below its peak prior to the hike. 

Canada Child Benefit

The Canada Child Benefit (CCB) has been praised and credited with boosting consumer spending, but it was actually more helpful for middle-income families than low-income ones. Cross notes that a single mother with one child got $1,548 from the CCB, whereas a family earning close to $50,000 got nearly $5,000 more.

He argues that the billions spent on the CCB could have been allocated to programs that raise economic growth. One such avenue is building pipelines. Higher prices for Canadian oil would have added $12 billion to the incomes of Canadians.

“The incidence of low income fell more during a period of relatively strong economic growth, without policies such as the CCB explicitly aimed at reducing low incomes,” Cross wrote.

“Judging by the experience of low income during the 2006–2008 period, this might have reduced the incidence of low income by as much if not more than the CCB achieved.”

Disentangling the effects of policies from economic currents can be difficult, but the arguments are very compelling for government policy focusing on boosting economic growth instead of redistributing incomes. People don’t want to depend on the government excessively.

Aside from the challenges of youth employment, Canada’s labour market has been one of the bright spots of the economy recently with jobs, hours worked, and wages picking up notably.

Follow Rahul on Twitter: @RV_ETBiz
RECOMMENDED