Increasing the minimum wage does not result in higher rates of unemployment, according to a study released Tuesday by the Canadian Centre for Policy Alternatives.
Instead, the report found, employment levels are largely driven by purchasing power in the economy.
The study was conducted by Jordan Brennan and Jim Stanford, economists for Unifor, the largest public sector union in Canada. It examines the relationship between increases in the minimum wage and employment across Canada between 1983 and 2012.
“The conclusion is very strong. There is no consistent evidence either way, that the minimum wage has any impact on employment at all, positive or negative,” Stanford said in an interview.
The report urges Canadian policy makers to boost the minimum wage — up to what’s known as a living wage level — in a gradual and ongoing way.
“We hope it will cause researchers and policy makers to pause and say, ‘All that debate about nothing.’ It doesn’t show up as important in the data and so we will look at the other criteria for making these decisions,” Stanford said.
The findings contradict reports by the Canadian Federation of Independent Business and other business groups suggesting that an increase in the minimum wage will result in lost jobs.
Stanford and Brennan tested whether changes in the minimum wage had a statistically significant impact on employment and unemployment in each of Canada’s 10 provinces.
The economists found that labour market performance in Canadian provinces appears to be driven overwhelmingly by demand.
“The wage is relevant, but it’s of a second order of magnitude compared to the crucial question for any business, namely, is there a market for what I want to produce and sell?” Stanford said.
“If there is, you’ll probably hire people even if the minimum wage is higher.”
The report did not find a direct connection between a bump in pay levels and demand, but in general, higher wages can help support stronger consumer spending, Stanford said.
“If people have money in their pocket, they’re more likely to eat in a restaurant. That’s the piece of the puzzle that is often ignored in the more simplistic discussions about the effect of minimum wage on employment.”
Even where a higher minimum wage means less profit for employers, “the eventual impact on employment levels will be partial and indirect,” the study found.
“Many low-wage employers can clearly afford to pay higher unit labour costs and experience modestly lower profitability while still remaining a competitive and viable business.”
A February, 2011, report by the Canadian Federation of Independent Business estimated that a 10 per cent increase in minimum wage across all provinces costs up to 321,300 jobs nationally. The job losses take the form of hiring freezes, slower employment growth or direct job cuts, the group said.
On June 1, Ontario raised its minimum wage to $11 from $10.25 an hour, the first increase in four years. The wage will now rise in line with inflation.