Debate Over the Minimum Wage Heats Up

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Proposals to increase the minimum wage have been gathering speed on both sides of the Canada-U.S. border. In January, President Obama called on Congress to lift the federal minimum wage from $7.25 to $10.10 an hour, an idea quickly rejected by Republican Party leaders. But America’s national government doesn’t hold a monopoly on labour standards in that country; state and local governments also play a role. Since 2011, more than a dozen U.S. states and several cities have increased the minimum wages in their jurisdictions. Earlier this year, Seattle adopted a $15.00 an hour minimum wage, the highest among all big American cities.

Highlights

  • A number of Canadian provinces and U.S. states and cities have recently increased minimum wages in their jurisdictions.
  • An extensive empirical economics literature on the effects of minimum wages reaches mixed conclusions. A higher minimum wage will benefit most low-paid employees; but at the same time, pushing up the minimum wage is likely to reduce the demand for lower-skilled labour and cause some employers to adopt less labour-intensive business models.
  • The economic impact of a higher minimum wage depends on the context – including the existing pattern of wages, the size of any increase, how frequently the government changes the minimum wage, and the characteristics of the pool of entry-level workers.
  • In Canada, 6.7% of workers were paid at the statutory minimum in 2013, up from 5.0% in 1997. The likelihood that a Canadian worker earns the minimum wage decreases with his/her age and also with the number of years of formal education.
  • Adjusted for inflation, the constant dollar minimum wage in Canada changed very little between the early 1970s and 2013.
  • In BC, the constant dollar minimum wage was equivalent to 46% of the average industrial wage in 2013. As a proportion of average hourly earnings, the minimum wage has risen in BC and in most other provinces since the early 1980s.