Almost every time a province raises its minimum wage, the business lobby “think tank”, The Fraser Institute, releases some publication arguing that the minimum wage will increase poverty, cause unemployment, and give you warts. This report will then be published by the National Post, which likes to pretend that the Fraser Institute is an independent, reliable, and neutral economic voice. For my industrial relations students, the Fraser Institute is a classic example of the neo-classical perspective.
Economists Against the Minimum Wage
So when I read recently that the B.C. government was going to be raising the provincial minimum wage after a ten year freeze under Liberal leadership, I went straight to the National Post to find the Fraser Institute piece. And there is was! Predictably, the Fraser Institute recounted its usually story, laying out all the regular economic studies that they claim prove that unemployment and poverty will increase if you raise the minimum wage even by 10%. The argument is that the minimum wage is mostly paid to people who are not poor, and that raising it causes employers to hire fewer workers. What is not clear from the Institute piece is that this view of the world is very controversial among economists. Reading the Institute piece would leave you with the impression that all economists agree that the minimum wage is bad policy and should be abolished.
Economists for the Minimum Wage
However, in fairness to the Post this time, they also published a counter argument by labour economist Jim Stanford of the Canadian Auto Workers. Stanford sets
out the other side of the story, arguing that the theoretical model upon which the Fraser Institute rests it predictions is based on an “Economics 101” perspective on how supply and demand for labour interact in a perfectly competitive market. In the real world, he argues, the situation is much more complicated, since labour markets are never perfectly competitive, and there are a whole range of other variables that determine how wage levels interact with employment levels that are ignored in the Fraser Institute perspective. Stanford concludes that: “In practice, the effect of minimum wages on employment is probably a wash.”
Of course, neither the general public nor the politicians who make our laws have any clue which side of the economic debate is most accurate. Not that this stops politicians from making bald assertions about the impact of minimum wage policies. As I have noted again and again on this blog: Question every economics-based argument used to justify a labour and employment law policy. Inevitably, there is another side to the argument that you are not being told.
