Winnipeg Free Press - ONLINE EDITION

Minimum wage boost not the best answer

  • Print

VANCOUVER — Proposals to boost the minimum wage have been drawing attention on both sides of the Canada-U.S. border.

In January, U.S. President Barack Obama called for lifting the U.S. federal minimum wage to $10.10 an hour. Since 2011, several American states and cities have increased minimum wages in their jurisdictions.

In Canada, four provinces are raising their minimum wages in 2014 (Ontario, Quebec, Nova Scotia and Newfoundland). Ontario is taking the biggest step, hiking the minimum wage to $11.00 an hour and indexing it to the Consumer Price Index going forward.

Are higher statutory minimum wages an effective way to improve the economic well-being of low- to moderate-income workers and families? Will some businesses respond to escalating minimum wages by shedding jobs? These questions have been extensively studied by academic economists in the past decade. Overall, the research yields mixed results.

Clearly, a rise in the minimum wage is positive for the lowest paid employees who experience no changes in their hours, benefits, or working conditions after the fact. Other workers, whose wages are slightly above the current minimum, are also likely to enjoy a pay bump. But basic economic logic and intuition suggest that any increase in labour costs, absent offsetting gains in productivity or additional business revenues, will prompt some employers to lay off workers, reduce hours, and/or find other ways to economize on the use of labour (for example, by investing in labour-saving technology).

It follows that at least some businesses affected by a higher minimum wage can be expected to trim their payrolls and adjust their hiring practices. Many will also seek to pass on any increase in labour costs to their customers via higher prices for the goods or services they sell.

Most economists who have studied the topic agree that small, periodic adjustments to the minimum wage don’t have much impact on the demand for labour. But larger increases are another matter.

According to the Congressional Budget Office, which is the non-partisan research arm of the U.S. Congress, Obama’s proposal to push the federal minimum wage from $7.25 to $10.10 an hour could cost up to one million jobs (although the CBO’s central estimate is closer to 500,000 lost jobs). The good news is that many millions more low-wage workers would see higher earnings under Obama’s policy, and the total income accruing to U.S. workers would undoubtedly rise.

However, the CBO says that only one-fifth of the beneficiaries of the president’s plan live in households with the lowest incomes. And a higher minimum wage can make it harder for low-skilled and entry-level workers to gain a foothold in the job market.

This suggests that a higher minimum wage may not be the best instrument to address poverty or the incidence of low paid employment. Still, it is one way to improve incomes for workers who are paid at or near the statutory minimum. For that reason alone it remains an appealing option in the eyes of some economists and policy analysts.

There is no reason to believe that the effects of a rising minimum wage on the demand for labour will be uniform across jurisdictions or time periods; much depends on the context. If the minimum wage has been frozen for many years, a modestly higher one is unlikely to result in many lost jobs. If the minimum wage is already set at a relatively high level — say at 55 or 60 per cent of the average industrial wage — then raising it further may create strong incentives for employers to alter their business practices to reduce the use of labour.

One alternative to higher minimum wages is an earned income tax credit that uses the tax system to increase the economic benefits of employment for lower-income workers. Experience in the United States has shown that an EITC can be helpful in reducing poverty and providing a minimally acceptable income to families with low-wage workers. The U.S. government now spends twice as much on the EITC as it does on welfare programs.

The Canadian government’s Working Income Tax Benefit is a scaled back version of the American EITC; the Canada Revenue Agency’s web site describes it as "a refundable tax credit intended to provide tax relief for eligible working low-income individuals and families." It is time to consider expanding the WTIB to increase the economic returns from employment for relatively low-paid workers.


Jock Finlayson is executive vice president of the Business Council of British Columbia.



Fact Check

Fact Check

Have you found an error, or know of something we’ve missed in one of our stories?
Please use the form below and let us know.

* Required
  • Please post the headline of the story or the title of the video with the error.

  • Please post exactly what was wrong with the story.

  • Please indicate your source for the correct information.

  • Yes


  • This will only be used to contact you if we have a question about your submission, it will not be used to identify you or be published.

  • Cancel

Having problems with the form?

Contact Us Directly
  • Print

You can comment on most stories on You can also agree or disagree with other comments. All you need to do is be a Winnipeg Free Press print or e-edition subscriber to join the conversation and give your feedback.

You can comment on most stories on You can also agree or disagree with other comments. All you need to do is be a Winnipeg Free Press print or e-edition subscriber to join the conversation and give your feedback.

Have Your Say

New to commenting? Check out our Frequently Asked Questions.

Have Your Say

Comments are open to Winnipeg Free Press print or e-edition subscribers only. why?

Have Your Say

Comments are open to Winnipeg Free Press Subscribers only. why?

The Winnipeg Free Press does not necessarily endorse any of the views posted. By submitting your comment, you agree to our Terms and Conditions. These terms were revised effective April 16, 2010.


Make text: Larger | Smaller


Jets players discuss outcome of Game 3 and hopes for Game 4

View more like this

Photo Store Gallery

  • A Great Horned Owl that was caught up in some soccer nets in Shamrock Park in Southdale on November 16th was rehabilitated and returned to the the city park behind Shamrock School and released this afternoon. Sequence of the release. December 4, 2012  BORIS MINKEVICH / WINNIPEG FREE PRESS
  • Marc Gallant / Winnipeg Free Press.  Local/Standup- Morning Fog. Horse prances in field by McPhillips Road, north of Winnipeg. 060605.

View More Gallery Photos


Do you think the Jets will win Game 4 on Wednesday?

View Results

View Related Story

Ads by Google