The minimum wage creates jobs—who knew?

With the election of conservative governments in Ontario and Alberta, progress on minimum wages in those provinces came to a screaming halt. In Ontario, the planned increase to $15 an hour was cancelled and capped at $14. In Alberta the minimum wage of $15 an hour was reduced to $13 for young workers.

The main argument against raising minimum wages is that it discourages investment and costs jobs by causing businesses to lay off staff, defer hiring, or speed up automation. And indeed it may cause some loss of jobs in the short term (although those who are working are better off), but an American study suggests that in the longer term it may actually add jobs.

The worker advocacy group the National Employment Law Project (NELP) analyzed government data from 1938 to 2009, a period in which the U.S. increased the federal minimum wage 22 times. The analysis found that 68 per cent of the time the employment rate was higher a year after the wage hike than it was before. According to the NELP, there is "no correlation between federal minimum wage increases and lower employment levels." And that's over a 71-year period.

Particularly interesting was that in the retail and restaurant industries, two sectors whose workers are most affected by minimum wage hikes, the analysis showed that a year later they tended to see even greater job gains—82 per cent of the time in leisure and hospitality, and 72 per cent of the time in retail.

None of this is surprising. Economies are consumer driven. Sixty per cent of Canada's GDP derives from personal household consumption. Logically therefore if you want to improve the economy, put more money into consumers' pockets. And nobody spends like lower-income earners. They have to spend every penny they make just to get by. As
economist Armine Yalnizyan puts it, "If you boost minimum wages, you are boosting the economy from the bottom up."

A minimum wage raise may cause some negative effects in the very short term, but judging by the NELP study, within a year not only workers but the economy generally is better off. And that's good for all of us.