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#1 MINIMUM WAGE
Sources: https://www150.statcan.gc.ca/t1/tbl1/en/cv.action?pid=1810000402#timeframe and
https://www150.statcan.gc.ca/n1/pub/75-004-m/75-004-m2019003-eng.htm
- The min wage values for 2015-2020 are nominal, i.e., measured in C$, not adjusted for
inflation. AB, BC and ONT had highest min wages.
- The percentage change in the general price levels is the inflation rate. The total inflation
between Feb 2015 and Feb 2020 was around 10%.
- The approximate “real” min wage increase can be expressed as the percentage change in the
nominal min wage minus the inflation rate. This “real” min wage increase reflects increase in
purchasing power. For example, AB had a 47% increase in nominal wage, but inflation was
10%, hence workers had an approximately 37% increase in buying power between 2015 and
2020.
- Studies have found that in the last 20 years, average nominal wage grew by about 2.7%
annually while average min wage grew by 3.5%.
- Average wages in the provinces were approximately double their min wages (data from 2018)
– this is important info… later on page 5.
- Sources: https://canadiandimension.com/articles/view/who-earns-minimum-wage and
https://www150.statcan.gc.ca/n1/pub/75-004-m/75-004
-m2019003-eng.htm
- Determination of min wage: By legislation, politicians, economic cycles, special committees,
etc.
The guiding principle is that workers earning min wage should be able to “survive” and min
wage increases are often indexed to inflation. For example, in QC, if min wage is $13.1 and
average work week is 40 hours, then annual pre-tax income is $27,000. What is this $27,000 in
economic context? What is “poverty”?
- Rule of thumb – Half of median or average income: In 2020, QC’s median income was
$39,300 and average was $48,400 .
- More specific – Low-income cut-off (LICO) : Suppose the average Canadian spends 43% of
after-tax income on necessities (food, shelter and transportation). LICO is the income of those
who spend 63% of such income on necessities, i.e., 20 percentage points higher than average.
LICO is adjusted by the size of households and population density. In 2020, LICO was $14,430
for one-person households in areas with a population below 1,000, $22,060 for one person-
households in areas with a population of at least 500,000, and so on
- contrast with $27,000.
- Since 2020: Min wages have increased but inflation has jumped from 2% to 7% in 2022. This
is likely to be temporary. The Bank of Canada will raise interest rates to cut inflation… subject
for Intro to Macro Econ 203… why do you think inflation has risen recently?
- Reasons: #1
#2
#3
Interest rates to counter inflation
oil price (Russia oil)
borrowing costs for
Makes demand go down
Food export ukraine
house buys
(ii)
Data 2: Who are these workers?
Source: https://www150.statcan.gc.ca/n1/pub/75-006-x/2018001/article/54974-eng.htm
- The total employment in 2017 was 16.83 million and 1.0181 million earned min wage,
so about 6% were min wage workers.
- The unemployment rate for youth aged 15 to 24 was around 10.3%; around 7% for overall
Canada.
- What percentage of min wage earners rely on min wage as their main source of
income? ______________15%________________
- What percentage of the total is lone/single parent families with child or children under
the age of 18? ______2%____________
- Between 2017 and 2018, the number of min wage workers in Canada increased by 61%,
pushing the share of min wage workers from 6% to 10% of all Canadian workers. ONT topped
at 15%, which coincided with the 21% increase in min wage ($11.6 to $14). Two reasons for
ONT’s sharp increase in min wage workers:
_______________________________________________________________
- Sources: https://www.fraserinstitute.org/article/raising-the-minimum-wage-is-not-the-right-
policy-to-help-struggling-families, https://www150.statcan.gc.ca/n1/pub/75-004-m/75-004-
m2019003-eng.htm, https://www.bankofcanada.ca/wp-content/uploads/2017/12/san2017-26.pdf
and https://www.savvynewcanadians.com/minimum-wage-canada/#:~:text=Ontario
%20Minimum%20Wage%20History,-Ontario's%20minimum%20wage&text=October%201%2C
%202020%3A%20%2414.25,October%201%2C%202016%3A%20%2411.40
(iii)
Data 3: What are some of their characteristics?
Source: https://www150.statcan.gc.ca/n1/pub/75-006-x/2018001/article/54974-eng.htm
- Which group relies almost solely on min wage as its main source of work income (excluding
other incomes)? _________GROUP 2___________
- In which sector are min wage workers most likely to work?______FOOD_______________
- Men or women more likely to work for min wage? ____WOMEN___________________
- Canadian-born or immigrants more likely to work for min wage? _IMM_____________
(immigrants account for around 22% of population).
- Education attainment: __MORE LIKELY
HS____
(iv)
What does economics say?
(a)
Question #1: Does raising the min wage only affect the min wage workers?
- When the min wage rises, such as from $12 to $15, the workers who were previously earning
$12.01 to $14.99 will be paid more. This increase in wage may also extend to the workers
earning above $15, such as those previously paid $16 and $17. Therefore, the cost to the
employers is much higher than the additional $3 for each min wage worker earning $12.
(b)
Question #2: How long do workers work min wage jobs?
- Studies have shown that after one year, more than 60% of min wage workers earn more, with
an average raise of about 20%. After two years, the percentage of workers earning more than
the min wage increases to over 80%.
(c)
Question #3: Does raising the min wage cost jobs?
- Theory: When the min wage rises, labour costs for the firms will rise and they may pass some
of this cost to the consumers. The price of the products that the firms sell will likely rise. The
consumers buy less and so the firms produce less, which means some job losses. However, the
remaining workers earn a higher income and so their demand for goods and services will rise.
Altogether, the firm may not observe a drop in sales and layoffs may not be needed. The net
effect on employment is unclear.
- Data: Economists do not have a consensus on whether a min wage hike means job losses.
However, a review of over 100 studies shows that about two-thirds have found job losses. They
found that for every 10% increase, the reduction in overall employment is about 1% to 3% but
the job loss for young workers is 3% to 6%. Studies have also found that firms are likely to cut
their budget for on-the-job-training. For example, a 10% rise may imply a 28% drop in on-the-job
training expenditure. Studies have also found that firms may strategically offer fewer hours to
each worker while increasing the total number of workers hired. For example, in the US,
workers working more than 20 hours a week are eligible for retirements benefits and those
working over 30 hours are also eligible for health benefits. A study has found that for every $1
increase in the min wage, the number of workers working 20 hours or more decreased by 23%
and those working 30 hours or more decreased by 15%.
(d)
Question #4: Does raising the min wage cut poverty rates?
- The link between raising min wage and decreasing poverty rates is weak – not too surprising.
- Optional Readings: https://www.brookings.edu/opinions/three-simple-rules-poor-teens-should-
follow-to-join-the-middle-class/, https://www.brookings.edu/research/work-and-marriage-the-
way-to-end-poverty-and-welfare/ and https://www.brookings.edu/wp-
content/uploads/2016/07/CreatinganOpportunitySociety1.pdf
(e)
Question #5: To what extent can we raise the min wage and still keep job losses to a
minimum?
- Some studies have also found that the min wage can be raised to around 50% of the
economy’s overall average wage with little job loss to the workers who earn the min wage... link
to page 1. For example, the average wage in San Francisco is around US$35 and its min wage
is around US$17. Min wage workers have experienced little change in their employment.
- Sources: https://www.labour.gov.on.ca/english/es/pubs/mwap/section_03.php,
https://www.nber.org/papers/w12663.pdf, https://wol.iza.org/articles/employment-effects-of-
minimum-wages/long, https://globalnews.ca/news/3943682/minimum-wage-hike-ontario-
alberta/, https://www.fraserinstitute.org/article/minimum-wage-increase-job-killer,
https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/fi
le/844350/impacts_of_minimum_wages_review_of_the_international_evidence_Arindrajit_Dube
_web.pdf, https://www.jstor.org/stable/2524739, https://hbr.org/2021/06/research-when-a-higher-
minimum-wage-leads-to-lower-compensation and
https://www.sciencedirect.com/science/article/pii/S0927537116302469
#2 IMMIGRATION
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