Conclusion

Both economic theory and empirical evidence support the broad conclusion that increases in the minimum wage reduce employment. Most empirical studies from Canada and the United States show that increases in the minimum wage have small but significant disemployment effects for young and unskilled workers. Other empirical and theoretical studies suggest that increases in the minimum wage induce other adverse affects, including reduced on-the-job training, fewer fringe benefits, higher school dropout rates, and reduced rates of human capital formation. Thus, in spite of some recent empirical evidence to the contrary, it appears that increases in the minimum wage have many negative economic effects, most of which are experienced by the young and the unskilled.

A commonly held view among politicians and the public is that increases in the minimum wage can have desirable effects on the distribution of income. To address this issue, I overview of the incidence of the minimum wage in Canada and the characteristics of workers earning minimum wage. It is found that workers earning minimum wage are disproportionately young, disproportionately female, and generally have fairly low levels of education. Furthermore, workers earning minimum wage are generally employed in sales and services sectors. Jobs at minimum wage tend to be of short duration and are generally supplied by smaller firms. Closer examination of the data provided by Fortin and Lemieux (1997) also reveals that a large proportion of workers earning minimum wage in Canada are young individuals living at home. Relatively few workers earning minimum wage in Canada can be classified as “needy” under conventional norms.

In light of these findings, it seems doubtful that increasing minimum wages in Canada will significantly improve the distribution of income. The poor are not particularly well represented among minimum wage earners. Increasing the minimum wage will likely redistribute resources towards young individuals who live at home. There does not appear to be a need to enhance the wealth of these groups, given that they are partially supported by their parents. Indeed, if raising the minimum wage results in higher prices for goods that are consumed by the genuinely poor, then they are made worse off by an increase in the minimum wage. Hence, it is possible to mount very good arguments against higher minimum wages, even under the generous but questionable assumption that the minimum wage has no disemployment effects. Relaxing this assumption and incorporating the likely disemployment effects of higher minimum wages into the analysis makes the case against an increase in the minimum wage even stronger.