Minimum Wage: Canadian Edition

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The Fraser Institute has a recent study on the minimum wage in Alberta. The results are telling:

  • As part of its effort to reduce poverty, Premier Rachel Notley’s government will raise Alberta’s minimum wage from $10.20 per hour, the rate when the Notley government took office three years ago, to $15 in October 2018. But, raising the minimum wage is not an effective way to alleviate poverty primarily because the policy fails to provide help targeted to families living in poverty.
  • In 2015, the latest year of available data, 92.0% of workers earning minimum wage in Alberta did not live in a low-income family. Though counterintuitive, it makes sense once we explore their age and family situation. In fact, most of those earning minimum wage are not the primary or sole in-come-earner in their family.
  • In 2017, 50.1% of all minimum wage earners in Alberta were between the ages of 15 and 24, and the vast majority of them (85.1%) lived with a parent or other relative. Moreover, 23.2% of all minimum wage earners in Alberta had an employed spouse. Of these, 90.1% had spouses that were either self-employed or earning more than the minimum wage. Just 2.1% of workers earning minimum wage in Alberta were single parents with young children.
  • In addition to ineffectively targeting the working poor, raising the minimum wage produces several unintended economic consequences to the detriment of young and inexperienced workers. This includes fewer job opportunities, decreases in hours available for work, reductions in non-wage benefits, a shift towards automation, and higher consumer prices, which disproportionately hurt the working poor.
  • A work-based subsidy is a more effective policy since it better targets the benefits to those in need without these negative economic consequences.

This fits somewhat with U.S. data. From David Neumark:

[T]he relationship between being a low-wage worker and being in a low-income family is fairly weak, for three reasons. First, 57% of poor families with heads of household ages 18–64 have no workers, based on 2014 data from the Current Population Survey (CPS). Second, some workers are poor not because of low wages but because of low hours; for example, CPS data show 46% of poor workers have hourly wages above $10.10, and 36% have hourly wages above $12. And third, many low-wage workers, such as teens, are not in poor families (Lundstrom forthcoming).

Considering these factors, simple calculations suggest that a sizable share of the benefits from raising the minimum wage would not go to poor families. In fact, if wages were simply raised to $10.10 with no changes to the number of jobs or hours, only 18% of the total increase in incomes would go to poor families, based on 2010–2014 data (Lundstrom forthcoming). The distributional effects look somewhat better at a higher threshold for low income, with 49% of the benefits going to families that have incomes below twice the poverty line. However, 32% would go to families with incomes at least three times the poverty line. By this calculation, about a third of the benefits would go to families in the top half of the income distribution (pg. 2).

Low-wage workers =/= poor households.