Is this the best they can do? The weak case against $14 in Ontario

Today the libertarian Montreal Economic Institute think tank released a short report claiming that Ontario’s $14 minimum wage is costing thousands of young workers their jobs and raising prices for everyone else. These overblown claims, based on skewed and cherry-picked data, came out—purely coincidentally to be sure—on the same day that Doug Ford’s Conservatives were set to enact Bill 47, the law that will cancel the planned increase in Ontario’s minimum wage to $15 on January 1, 2019 and reserve many other gains for Ontario workers such as two paid sick days.

The MEI study makes three main points, (1) that Ontario’s $14 minimum wage has caused 56,000 youth jobs to be lost so far, (2) that it has raised prices at restaurants by 5.6% and (3) that it is ineffective at fighting poverty. (Although it is irresponsible to call what MEI released a study; it is essentially a 2-page brief with an appendix mostly comprised of a very selective bibliography.)

Each is a claim is highly problematic, based either on cherry-picked data, a misreading of the research or both. Let’s take a look at each in turn.

First, the MEI claims that employment for 15- to 24-year olds in Ontario fell by 56,000 since the introduction of the $14 minimum wage. Looking at the data, however, it’s plain that there has been a big increase in youth employment volatility and it’s much less clear what the ultimate impact on youth employment itself has been. The MEI essentially cherry-picked a difference between the highest (November 2017) and one of the lowest (October 2018) volatile monthly points to get the largest possible estimate of jobs lost.

To see how volatile the data is, let’s pick a couple other month pairs. Between November 2017 and March 2018, the change in 15- to 24-year old employment is zero. That’s between the date Bill 148 was announced and after one quarter of it being in effect! Between July 2017 and July 2018 there was a gain of 22,400 jobs for 15- to 24-year olds. In fact, looking at these year-over-year changes in employment, the more stable average year-over-year change in youth employment in the ten months between January and October 2018 has in fact been a 16,900 job gain.[1]

Meanwhile, the employment rate for 15- to 64-year olds, which is much less volatile and comprises a much larger number of workers, is nearly identical today to November 2017, unchanged since Bill 148 was enacted. This represents a year-over-year gain of 82,800 jobs.

Looking more broadly at the first three quarters or nine months of 2018 so far, employment in Ontario has been up 1.7% on average year-over-year, higher than the rest of the country at 1.4% on average. In six of the nine months so far in 2018, Ontario’s unemployment rate was over 0.5% lower than in had been a year previous.

Not only has Ontario’s jobs performance kept up with or outpaced Canada-wide trends, it has been disproportionately strong in low-wage sectors—those where you would most expect to see negative effects from a higher minimum wage. September’s year-over-year employment growth in each of the three service sectors where low wage work is most common beat Canada-wide figures by around 0.5%. At the same time, earnings for low-wage workers have seen a big boost. Total wages in accommodation and food services, the most low-wage-heavy sector of the economy, were 14% higher in September than they were one year earlier, increasing at double the Canada-wide rate. Little sign of existing or impending labour market doom.

Next, the MEI cherry picks price data to fear-monger about out-of-control price increases. While Ontario’s restaurant prices did jump somewhat right after the minimum wage increase, overall inflation is in line with the rest of Canada. In fact, Ontario’s CPI is 2.2% higher than it was a year ago, exactly the same as  Canadian CPI. In a meaningful, general sense, prices in Ontario are growing at the Canadian average. This is in line with most research, which finds very limited price effects from minimum wage increases.

The MEI is right, however, that restaurant prices did experience a bump. Between December 2017 and March 2018, they grew by 4.8% in Ontario; however, this has to be compared to overall price growth which was 2.1% over the same period—leaving a difference of 2.7%. Since then, however, restaurant prices have roughly kept pace with overall price growth and growth in restaurant prices across Canada (which Ontario has also tracked closely, with a very similar 2.6% shift upwards over the national average in early 2018). This relatively small, one-time bump in restaurant prices is not unexpected (and it is 27 cents on a $10 meal). In fact, it shows firms in industries with the very highest concentrations of minimum wage work finding avenues other than cutting jobs to absorb cost increases.

Finally, the MEI is wrong to claim that most studies show no connection between higher minimum wages and lower poverty rates. The latest research states the exact opposite, finding a clear link between higher minimum wages and lower poverty. A very recent “meta-analysis”, or study of studies, took 12 of the most credible new research papers on the topic, even including those from well-known academic opponents of raising the minimum wage and found that for every 10% increase in the minimum wage, the number of non-seniors living in poverty decreased by 2% to 5%. It also found significant increases in household incomes for the bottom half of households, largest among those in the bottom quarter. (For a good, non-technical explanation, see this piece in the Washington Post.)

Past research, today’s jobs numbers, even initial reports from the big banks confirm that a higher minimum wage does not spell doom, either for Ontario’s economy or for low-wage workers. In fact, it appears to have been the boost from the bottom up that was needed. While there is certainly space to study the effects of increasing Ontario’s minimum wage to $14 (and the still, as of writing, planned increase to $15 on January 1, 2019) in more detail, the MEI is only muddying the waters with its simplistic, skewed analysis.

 

[1] The impact on teen (15- to 19-year olds) employment has long been a key feature of minimum wage research, with some earlier research showing statistically significant impacts. Some more sophisticated and more recent studies from the US have overturned these results, finding no significant effects on employment from raising the minimum wage,  even on teens. And even those still-significant estimates from recent Canadian research would find much smaller impacts (by a factor of more than two) than the crude calculations done by the MEI.

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Jobs data doesn’t say much about the minimum wage (yet) but lots about growing inequality

We’ve had two months of jobs data in Canada since Ontario increased it’s minimum wage from $11.60 to $14 on January 1, 2017. When January’s Labour Force Survey numbers came out and showed some of the biggest month-over-month losses in years, there was a slew of predictable, reflexive commentary blaming Ontario’s minimum wage hike. Now that we have a second month of data that show modest job gains as well as falling unemployment, down to 5.8% nation-wide and 5.5% in Ontario, the same critics are silent. The lesson is that they should have also been silent about January’s numbers.

Simply put, we don’t know enough to lay the blame for good or bad jobs numbers at the feet of a minimum wage hike in Ontario. Both January’s negative data and February’s positive data should give us pause. The monthly jobs data are volatile. The drop in January was so out of line with long-term trends that it raised the eyebrows of nearly all economists. Part of January’s losses are due to the typical rash of post-holiday lay-offs. But these numbers also seem at least in part statistical error rather than a reflection of something happening in the real world, especially when compared with February’s return to the trend of consistent, if modest, job growth.

Unemployment rates across Canada; Ontario is second lowest at 5.5%. Source: Statistics Canada, The Daily for March 9, 2018.

(more…)

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Media get it wrong on Bank of Canada minimum wage study

Over a million workers in Ontario just got a big raise thanks to tireless, bottom-up orgainizing, but if you look to the media it’s a bad news story. The same, tired headlines are back. Yesterday, the CBC ran a story titled, “Minimum wage hikes could cost Canada’s economy 60,000 jobs by 2019”. Today, the Toronto Star’s front page blared, “Wage hike could cost 60,000 jobs, Bank of Canada says”.

Reading either of these headlines or the stories that follow, you could be forgiven for not knowing that the cited Bank of Canada research note had a positive conclusion about the effect of minimum wage increases on workers. A major claim of the Bank’s note is that, for workers, the benefits of increasing the minimum wage outweigh the costs in terms of labour income. First of all, the Bank is not predicting 60,000 pink slips but merely a slowdown in continued job growth. The 60,000 figure is a national, annual one and represents just 0.3% of total employment. Monthly job growth has at times exceeded this number.

More importantly, the Bank found that the costs of projected (remember these are still only projections) lower employment are outweighed by the benefits from higher economy-wide wage income stemming directly from the minimum wage increase. The authors write, “On net, however, real labour income should be higher following the implementation of these measures relative to otherwise. This is because the 0.7 per cent increase in the level of aggregate real wages more than offsets the 0.3 per cent decrease in total hours worked.” (more…)

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Minimum wage whack-a-mole

Minimum-wage whack-a-mole is the best way to describe what I’ve been up to the past couple months. It seems like every week or so in August and September, the business lobby in Ontario was serving up a plate of inaccurate yet headline-grabbing predictions for consumption in the public debate.

Going against the grain of the best academic research and recent experience elsewhere, these reports have attempted to scare Ontarians into thinking that the costs of raising the minimum wage outweigh the benefits. As 53 Canadian economists, including myself, outlined in an open letter published earlier in the summer, new research is clear: raising the minimum wage is good for workers and the economy.

Here’s a quick list of pieces I’ve written over the past months countering the inflated, sometimes heavily so, predictions of minimum wage opponents. (more…)

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Canadian economists support $15, media round-up

53 Canadian economists, myself among them, have signed an open letter in support of the $15 per hour minimum wage. The letter follows on the immense bottom-up campaign in Ontario led by the Fight for $15 and Fairness, which has successfully pressured the provincial government to announce a move to $15 by 2019. It should also be a boost to movements in other provinces fighting for the same.

Here’s a key excerpt from the letter which outlines the now well-established economic case for $15:

But low wages are also bad for the economy. There are good economic reasons to raise the incomes of low-wage workers. Aggregate demand needs a boost. While Canada escaped the harshest impacts of the 2007-08 financial crisis, our country has also seen a slowdown in growth. We risk further stagnation without reinvigorated economic motors. As those with lower incomes spend more of what they earn than do those with higher incomes, raising the minimum wage could play a role in economic revival, improving macroeconomic conditions.

For years, we have heard that raising the minimum wage will kill jobs, raise prices and cause businesses to flee Ontario. This is fear-mongering that is out of line with the latest economic research. Using improved techniques that carefully isolate the effects of minimum wage increases from the remaining noise in economic data, the weight of evidence from the United States points to job loss effects that are statistically indistinguishable from zero. The few very recent studies from Canada that have used these new economic methods agree, finding job loss effects for teenagers smaller by half than those of earlier studies and no effect for workers over 25.

There are many possible reasons for minimum wage increases to lead to little or no job loss. Studies have found lower turnover, more on-the-job training, greater wage compression (smaller differences between higher- and lower-paid workers) and higher productivity after minimum wage increases. In short, raising the minimum wage makes for better, more productive workplaces.

The business lobby has also suggested that any minimum wage increases will simply be passed on as higher prices. First, the above-mentioned improvements will offset some part of the higher labour costs to business. Second, there is no instantaneous, automatic mechanism between higher labour costs and higher prices. Some of the costs not absorbed by increased efficiency may go to price increases, but these are likely to be small and, for low-wage workers, offset by higher incomes coming from rising wages. Furthermore, if we remember that over 1 in 4 workers in Ontario makes under $15 per hour, we should not treat slightly higher inflation as the main criterion of successful policy; instead we should focus on the substantial benefit to low-wage workers, their families and the economy as a whole.

(more…)

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The $15 minimum wage is good: busting business lobby myths

With the Ontario government seriously considering raising the minimum wage thanks to the tireless organizing efforts of the $15 and Fairness campaign, the labour movement and thousands of supporters, the business lobby is out fear-mongering in force. Here is a tool for the rest of us to fight back. It’s a collection of 5 myths and facts about raising the minimum wage: clear arguments for why $15 an hour is right for Ontario workers and the Ontario economy. This is an edited version of a section prepared for the Rank and File $15 and Fairness Now! An Organizer’s Handbook for Building a Movement.

MYTH #1: Raising the minimum wage will cost low-wage workers their jobs.

FACT: There is resounding evidence that raising the minimum wage is not a job-killer. Economists doing cutting-edge studies have found that the typical minimum wage increase does not cause major overall job loss. “Job loss is more of a threat than a theory.” For instance, the threat that robots will take our jobs has been made for over 200 years and full-time work is still 40 hours a week or more! The argument that jobs will be shipped offshore fails similarly. As much as business tries, it’s not yet possible to move a barista job halfway around the world. There are still so many jobs that require human labour.

A $15 minimum wage would pump billions of dollars into the pockets of low-wage workers and thus the Ontario economy. Jobs would be created as a result of the new economic activity, compensating for losses incurred by businesses that can only function on poverty wages. As the minimum wage goes up, workers become more valuable to businesses and jobs generally get better. Economists have found that when the minimum wage rises workers get more training and there is less turnover. Businesses put more energy into raising efficiency rather than keeping tabs on workers in poverty. And wages tend to become more equal: wages for managers and other high-paid workers don’t go up as much and businesses spend proportionately more on the lowest-paid.

Most importantly, potential job losses are not the only thing we should care about when the minimum wage goes up. Less poverty, better jobs, higher incomes for the lowest-paid — all of these would far outweigh the impact of a minimal job loss.

(more…)

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