– The C.D. Howe Institute is an independent not-for-profit research institute whose mission is to raise living standards by fostering economically sound public policies through research that is nonpartisan, evidence-based and subject to definitive expert review.
CANADA – After weighing the lessons of economic theory and real-world experience, a leading Alberta economist, Joseph Marchand, concludes that Alberta’s move to raise the minimum wage to $15 an hour by 2018 could lead to the loss of roughly 25,000 jobs.
In a new report from the C.D. Howe Institute, “Thinking about Minimum Wage Increases in Alberta: Theoretically, Empirically, and Regionally,” Marchand recommends that Alberta, being a boom and bust economy, would be better off taking current and future economic conditions into account when considering any future increases to its minimum wage.
In 2015, Alberta became the first province in Canada to commit to a $15 minimum wage, and will be the first state or province in North America to reach it, rising from an initial rate of $10.20 in 2014 to $15.00 by 2018 through four annual increases. Marchand offers ways to more broadly think about the effects of these minimum wage increases, with an emphasis on potential changes to employment in the particular case of Alberta.
Marchand notes that Alberta shares its recent $15 minimum wage goal with the province of Ontario, as well as with the states of California and New York, which also began at similar minimum wage levels.
However, Alberta’s time horizon of 2018 is much shorter than that of 2022 for California and New York, as he points out. Its policy also does not contain the unique policy parameters of those states, and Alberta did not implement the tax credit to promote hiring that it was initially paired with.
According to theory, says Marchand, an employment loss is expected from imposing a higher minimum wage in a competitive labor market, although if employers are few, no change or even an employment gain could happen.
Proper measurement of the effects from Alberta’s policy can take place only after the policy has been fully implemented, says Marchand. But in the meantime, several rough calculations for Alberta indicate a potential loss of roughly 25,000 jobs, assuming competitive markets in the industries employing workers at the minimum wage. A similar number of affected workers have already lost their jobs since the policy was first implemented.
The author points out that the boom and bust nature of Alberta’s energy resource economy could potentially mitigate or exacerbate the employment effects of such a large minimum wage increase. While the influence of energy prices on labor demand is largest in the energy extraction sector, these effects have been shown to spill over into other local industries as well. The largest spillovers happen to take place in the industry employing the most low-wage workers.
Given the boom and bust nature of the regional economy, Alberta should have timed its minimum wage increases with upward movements in energy prices. “Without an upward swing in energy prices, the job creation tax credit, or any other economic flexibility, Alberta mistakenly prioritized wages at a time when employment was a problem,” concludes Marchand.
