The minimum wage debate will never end, so get used to it

OPINION: The Liberals want to implement a $15 minimum wage, and while politicians and business types bicker over whether this is a good thing, John Michael McGrath grumbles that we’ll never really know
By John Michael McGrath - Published on Jul 05, 2017
Seattle raised its minimum wage from $11 to $13 last year, and a number of researchers have tried to quantify the effects of the increase. (LoweStock/iStock)



Seattleites may not know it, but their city has become a proxy battlefield in Ontario’s ongoing minimum wage wars.

Just before Canada Day, 40 left-leaning economists signed an open letter supporting the Liberal government’s move to raise Ontario's minimum wage to $15 by 2019. They noted that, in Seattle, where the minimum wage increased from $11 to $13 last year on the road to $15 for some large employers starting this year, “none of the doom-and-gloom predictions have come true.”

But not so fast, say critics: a working paper published by the National Bureau of Economic Research says the raise costs employees hours worked to the tune of $125 per month. That paper followed an earlier one that found the Seattle increase had a small but positive effect on wages for restaurant workers.

Confused yet? Or perhaps irritated by the failure of economists to come to some sort of consensus? Wishing, like Harry Truman, for a one-armed economist — one unable to say, “On the other hand…”?

Well, get used to it. Canada’s had minimum wage laws for nearly a century (B.C. introduced the country’s first in 1918; Ontario followed in 1920), but ask for a clear explanation of their effects and you’ll get an earful. The fundamental question is whether the benefits (increased security and spending power for the working poor) outweigh the costs (employers potentially hiring fewer people or scheduling fewer hours).

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Part of the problem is that what seems like a clear question — good or bad? — is in fact a complicated one that’s difficult to answer. For obvious reasons, governments don’t subject the minimum wage to a randomized control trial, so it’s not possible to show empirically what an increase would do.

Which isn’t to say people haven’t tried: Audra Bowlus, chair of the economics department at Western University, notes that the profession has gotten creative trying to answer this question. Economists look at labour markets on the borders of states and provinces, where businesses could theoretically choose to locate themselves in one jurisdiction over the other. Or they construct models using data at hand to create the hypothetical counterfactual. But these methods are imprecise: for all the hullabaloo over those allegedly duelling Seattle studies, it’s important to note that their results aren’t diametrically opposed, as the headlines might have you believe.


Those looking for a clear policy solution will find even more muddiness, because as Bowlus notes, “governments don’t increase the minimum wage randomly, either.” Rather, they tend to hold off in economic downturns and then increase wages in boom years. So if a higher minimum wage does reduce employment, that effect might get lost in the generally good economic times — until the next recession, when unemployment would be marginally higher than it might otherwise have been.

Clarity may just be impossible on this topic.

On the other hand (sorry), Ontario’s increase could provide somewhat clearer results. A January 1, 2018, raise will take the province’s base hourly wage from $11.60 to $14, as a prelude to the $15 minimum in 2019. That’s a bigger and faster increase than Ontarians have seen in long time: 20 per cent in 2018. By 2019, it will be fully 30 per cent higher than it is now. And the minimum wage in this province is as high as it’s been since at least 1965, in inflation-adjusted terms.

Despite assurances from progressives and economists that a $15 minimum wage won’t be disastrous, two anxieties still gnaw at the back of my head: First, policy doesn’t have to be disastrous to be bad, it just has to be worse than the status quo — and it’s easy to produce bad outcomes when all criticism (in this case, from the business lobby) is dismissed out of hand. Second, and at least as troubling, even if the policy is good, it’s possible to execute a good policy badly.

All this to say, the predictable grumbling from business owners about this increase actually has some merit, not least because the move smacks of election-year panic from the Liberals. (The government promised to depoliticize the minimum wage in 2014 by linking it to inflation — so much for that.) You don’t have to own a McDonald’s to feel anxious about all this, or to question the presumed virtue of the government’s actions.

If prior research on minimum wage increases has suffered from ambiguous, statistically negligible findings, well, Ontario’s rapid and large jump seems as if it will offer clearer data to work with. Unlike in Seattle’s case, this experiment won’t be limited to one city — it will encompass a huge province containing 13.4 million people and wildly divergent regional economies.

Economists of the world: you’re welcome.

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