The impact of higher minimum wages

Minimum wages are rising all across Canada this year.  The most widely-publicized increase is in Ontario, where the minimum wage jumped to $14/hour on January 1 from $11.60 previously, and will rise to $15/hour on the first day of 2019, provided the Liberals are re-elected come June. (Not, of course, that the abrupt increase in the minimum, and the crafty ploy of bringing it in in two stages, has anything to do with the looming election -- perish the thought).  Several other Provinces, notably Quebec and Alberta, are primed to follow Ontario's lead.

Studies of the impact of higher minimum wages in various US states have tended to suggest that the overall effect is positive, though it has to be said that few jurisdictions have dared to make as big a move as Ontario's.  During the holiday period the Bank of Canada quietly tabled a staff report suggesting that the impact of the actual and planned increases will be moderately negative: somewhat lower employment by 2019 (but higher labour income), slightly lower GDP and slightly higher inflation.

The headline takeaway from the report, at least as far as the media are concerned, is a forecast that by 2019, employment will be 60,000 lower than it would have been in the absence of the minimum wage hike.  A quick perusal of media comments boards or Twitter will reveal that a large number of people are interpreting this as meaning that 60,000 unfortunate souls will be thrown out of work stat.  This is not, of course, the report's conclusion. Given that the economy created over 300,000 jobs in 2017, and given that GDP is forecast to continue growing, albeit more slowly, through this year and next, it seems certain that overall employment will in fact increase, not decrease.

As for the forecasts for higher inflation and lower GDP, once again the report is talking about minor changes to the previously-expected base case.  GDP is not forecast to decline outright, but simply to rise very slightly less quickly.  Even that projection needs to be qualified: the report's authors suggest that the Bank will move to tighten policy more quickly if the wage hike boosts inflation.  Given the number of other factors that go into the Bank's policy decisions, this is far from certain.

The report's belief that aggregate labour income will be boosted by the minimum wage hike, despite the marginal loss of employment, has received little media coverage, no doubt because it is buried towards the rear of this very long (8 pages!) document.  Yet surely this is the key point.  It has been reported this week that CEO pay in Canada has been rising at an 8 percent annual clip, against less than 1 percent for hourly paid employees.  CEOs at the largest corporations now earn more than 200 times the average wage.  This year's increases, especially in Ontario, may be startlingly large, but in the context of rising inequality, they hardly even count as a baby step. 

UPDATE, January 4:  In response to the higher minimum wage, a few franchisees of the world's worst coffee chain, Tim Horton's, are cutting employee benefits.  I'd boycott the place, but I never go there anyway so it wouldn't have any effect.