Minimum Wage Increases Don't Help the Poor

My latest Calgary Herald column looks at the recent increase to Alberta's minimum wage, and whether this policy is of any use:

It didn’t attract anywhere near the attention of the changes to Alberta’s impaired driving laws, but Sept. 1 also marked a change in the province’s minimum wage.
Alberta now has the second-lowest minimum wage in Canada, as the rate increased from $9.40 per hour to $9.75 per hour.
Perhaps one of the main reasons why the change took effect with such little fanfare is that there are very few Albertans who actually stand to benefit from the change.
For one, very few workers in this province actually earn minimum wage — the lowest percentage, in fact, in the country.
That should come as little surprise. Alberta’s hot economy has resulted in higher wages — a direct result of supply and demand. Workers are in shorter supply; the demand for them is up, and therefore, the costs (i.e., wages) rise accordingly.
Recent statistics bear this out. As of June, Alberta’s average hourly wage was $25.17 — more than three dollars above the national average. Now, of course, this figure includes energy sector wages — for those in oil and gas extraction, for example, the average hourly wage is $57.28 per hour.
However, when it comes to low-skill, entry-level jobs — the kind that might typically pay at or near minimum wage — we see these factors at play. Retail jobs pay an average of $14.07 per hour, gas stations pay an average of $13.07 per hour, and full-service restaurants pay an average of $12.39 per hour (not including tips).
For the vast majority of these workers, a higher minimum wage is rendered moot by the fact that they already earn well above that.
There are indeed some workers in Alberta who do earn minimum wage, yet it’s important to note that not all of them will necessarily benefit from the increase.
In an economy where employers are paying more to attract workers, even to low-skill jobs, it is clearly those with the lowest of margins who are paying the bare minimum.
But if those employers can’t afford to pay beyond the minimum, what’s likely to happen when a wage increase is forced on them? Wages are costs, after all, and do we really expect businesses to swallow a cost increase and do nothing in response?   Some may respond by raising prices, although presumably their prices are already as high as they deem to be feasible. Higher prices may hurt their business even more.
Either way, higher prices hurt low-income earners the most — the very low-income earners that we’re ostensibly trying to help here.
What’s more likely to result is a loss of jobs, a loss of hours, or a loss of training and benefits. So yes, for those who keep their jobs, and their current level of hours and benefits, the higher minimum wage will result in a very slight benefit.   For those who have their hours cut or lose out on additional training or benefits, their situation is worsened as a direct result of a policy specifically intended to help them.
This is borne out in the literature. For example, a recent study published in the journal Labour Economics by economists at the University of Waterloo found that a 10 per cent increase in the minimum wage correlated with a drop in teen employment and an increase in the percentage of families living in poverty.
In other words, minimum wage increases can exacerbate the very problems they’re supposed to be addressing. One would think that anti-poverty activists would be abandoning this strategy in droves. Unfortunately, that’s not the case. The argument from labour groups and anti-poverty activists in Alberta is that the increase in the minimum wage should be even more substantial than it is.
It may well be that the harms resulting from minimum wage increases are less evident in a province like Alberta, but a policy where the best-case scenario is minimal harm is by definition a useless policy.
It’s easy, though, for governments to raise the minimum wage. Others do the heavy lifting, and governments can boast that they’re “doing something.”
But if the goal is helping the less fortunate, then minimum wage increases are the wrong policy prescription.